I need a discussion response to the following post

Bonds are debt securities which a corporation or Government issues or sells to raise capital, when wishes to borrow money from the public on a long term basis. A bond functions like a loan between an investor and a corporation. The investor agrees to give the corporation a specific amount of money for a specific period of time in exchange for periodic interest payments at designated intervals. When the loan reaches its maturity date, the investors loan is repaid.

Issuing bonds is often a more attractive proposition. The interest rate companies pay bond investors is often less than the interest rate they would be required to pay to obtain a bank loan. Since the money paid out in interest detracts from corporate profits, and companies are in business to generate profits, minimizing the interest amount that must be paid to borrow money is an important consideration. The ability to borrow large sums of money at low interest rates gives corporations the ability to invest in growth, infrastructure and other project. There are types of bond options ranging from bond types to duration and interest rates, enable investors to select investments closely aligned with personal funding needs.

According to Ross, bond is normally an interest-only loan that the borrower will pay the interest every period, but none of the principal will be repaid until the end of the loan The amount that will be repaid at the end of the loan is called the bonds face value or par value.(2015) (p. 196).

Bonds provide financing for Corporations for several reasons:

It is a way to raise capital without diluting the current shareholders' equity.

With bonds, corporations can often borrow at a lower interest rate than the rate available in banks. By issuing bonds directly to the investors, corporations can eliminate the banks as "middlemen" in the transactions. Without the intermediaries, the borrowing process becomes more efficient and less expensive.

By issuing bonds, corporations can often borrow money for a fixed rate for a longer term than it could at a bank. Most banks will not make fixed rate loans for longer than five years because they fear losing money if their cost of funds (raised by selling CDs, savings accounts, and the like) rises to a higher rate than long-term loans. Most companies want to borrow money for long terms and so elect to issue bonds.

The bond market offers a very efficient way to borrow capital. By issuing bonds, the borrower is spared the task of undergoing numerous separate negotiations and transactions in order to raise the capital it needs.

Key Differences between using Bonds to finance capital projects and using stock for that purposes

There are a few advantages of issuing bonds instead of stock when acquiring or financing assets such as, the interest on bonds is deductible on the corporation's income tax return. Dividends on stock are not deductible on the income tax return. Another advantage for bonds to finance capital projects is that the ownership interest in the corporation will not be diluted by adding more owners. Bondholders and other lenders are not owners of the assets or of the corporation. Therefore, all of the gain in the value of the assets belongs to the stockholders. The bondholders will receive only the agreed upon interest. This is related to the concept of leverage or trading on equity. By issuing debt, the corporation gets to control a large asset by using other people's money instead of its own. Once the project/ asset ends up being very profitable, all of its earnings minus the interest will enhance the owners' financial position.

In summary, issuance of bonds means companies need to raise money and can continue to issue new bonds as long as they can find investors willing to act as lenders. The issuance of new bonds has no effect on ownership of the company or how the company is operated. Stock issuance, on the other hand, puts additional stock shares in circulation, which means that future earnings must be shared among a larger pool of investors. This can result in a decrease in earnings per share (EPS), putting less money in owners' pockets. EPS is also one of the metrics that investors look at when evaluating a firms health. A declining EPS number is generally not viewed as a favorable development.

Issuing more shares also means that ownership is now spread across a larger number of investors, which often makes each owners share worth less money. Since investors buy stock to make money, diluting the value of their investments is not a favorable outcome. By issuing bonds, companies can avoid this outcome.

After Video

The value of depends primarily on value of its cash flow of: (1) the Present Value of the Coupon Payments, ( 2) The Present Value of the Par Value (time value of money of the bonds price).

Comparison and contrasts between Bonds and stock are:

Stocks, or shares of stock, represent an ownership interest in a corporation. Bonds are a form of long-term debt in which the issuing corporation promises to pay the principal amount at a specific date.

Stocks pay dividends to the owners, but only if the corporation declares a dividend. Dividends are a distribution of a corporation's profits. Bonds pay interest to the bondholders. Generally, the bond contract requires that a fixed interest payment be made every six months.

Every corporation has common stock. Some corporations issue preferred stock in addition to its common stock. Many corporations do not issue bonds.

The stocks and bonds issued by the largest corporations are often traded on stock and bond exchanges. Stocks and bonds of smaller corporations are often held by investors and are never traded on an exchange.

A comparison chart may be simplier:

Comparison Chart

BASIS FOR COMPARISON	STOCKS	BONDS
Meaning	Stocks are the financial instrument that carries ownership interest, issued by the company in exchange for cash.	Bonds are the debt instrument issued by the companies to raise capital with a promise to pay back the money after some time along with interest.
Issued by	Companies	Government institutions, companies and financial institutions, etc.
What is it?	Equity instrument	Debt instrument
Return	Dividend	Interest
Is the return guaranteed?	No	Yes
Owners	Stockholders	Bondholders
Status of holders	Stockholders are the owners of the company.	Bondholders are the lenders to the company.
Risk	High	Comparatively low
Add on benefits	The holders get voting rights.	The holders get preference at the time of repayment.
Market	Centralized