Final answer:
A company issuing bonds between interest payment dates collects accrued interest from buyers, which is reimbursed on the next payment. Bondholders can sue if interest payments are missed, potentially leading to asset liquidation.
Step-by-step explanation:
When a company issues bonds on dates other than the regular interest payment dates, it must account for the interest that accrues from the last interest payment date to the date the bonds are issued. This accrued interest is known as accrued interest, which the buyers of the bonds will pay to the issuer at the time of purchase. Consequently, the issuer receives the sale price of the bonds plus the accrued interest. On the next scheduled interest payment date, bondholders will receive the full interest payment, but it's worth noting they had already paid a portion of this when they purchased the bond, effectively reimbursing them for the accrued interest portion.
Failure to make interest payments by the issuing firm allows bondholders to take legal action, which could lead to bankruptcy proceedings and liquidation of company assets to recover their investments. However, there's no certainty that the bondholders will recoup the full amount loaned, especially if the company's assets do not cover the debt. Diversification is a strategy investors can use to mitigate risks associated with potential defaults on bond payments.