Sunday, January 4, 2009

Characteristics of Debt Securities

There are many features of Debt Securities such as bonds that make them unique:
  • Bonds have a superior liquidation claim in bankrupty than equity securities (stocks)
  • Interest on debt is tax deductible
  • Debt Securities represent funds borrowed by a firm
These securities represent funds borrowed by the firm instead of equity securities such as stocks that represent ownership in the firm. Owning bonds do not allow voting rights in a firm like equity securities. One advantage of debt securities is that interest paid on the debt is tax deductible by the company. Lastly, debt holders have more priority over equity holders if the firm is liquidated due to bankruptcy. These characteristics of debt securities make them attractive to investors.

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The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.