Home / Questions / In the context of the reasons why entities borrow in the form of bond issues, which statem
In the context of the reasons why entities borrow in the form of bond issues, which statement is correct? Check all that apply.
1. Bond financing dilutes shareholder equity by reducing current shareholder ownership. This makes it difficult for companies to get aproval to raise funds through bond financing.
2. When U.S. Treasury yields are low and the spread between the Treasury and corporate bond yield is narrow, issuers can lock in low costs of borrowing through bond issues.
3. Because of covenants, issuers often find direct borrowing from a bank more restrictive than selling debt on the bond market.
4. When spreads are narrow, borrowers want to lock in low coupon payments for the long term; investors, however, prefer short and medium terms, to avoid losing income when interest rates rise.
5. When bonds issued by foreign governments offer higher yields than U.S. Treasury yields, corporate issuers in the U.S. get the opportunity to issue debt securities at low costs.
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