SIE: Chapter Two

Chapter Two

Debt Securities

At the beginning of Chapter One, we talked about how issuing debt securities is another way for a company to raise money in the securities markets. Let’s consider this practice in more detail.

Issuing debt securities allows a business to get financing without diluting ownership and control, which are the downsides of equity financing (selling stock). Companies generally seek a balance between equity and debt financing, depending on their size, their profitability, their cash flow needs, and the nature of their assets.

The most common type of debt security is a bond. A bond is like an IOU for a fixed amount of money. A company that issues bonds promises to return a specific amount of money plus periodic interest to the bond purchasers by a certain date. This date is called the maturity date or re