Question

Suppose the chief financial officer of a company is interested in raising funds for a major investment by issuing bonds of varying maturity to investors. What is the purpose of issuing bonds in this scenario?

1) To increase the company's equity
2) To reduce the company's debt
3) To finance the major investment
4) To attract new investors

Answer 1

Issuing bonds allows a company to finance major investments by raising capital through debt, without giving up company control as it would by issuing stock.

Step-by-step explanation:

The purpose of issuing bonds in the scenario where a chief financial officer of a company wants to raise funds for a major investment is to finance the major investment. Bonds are debt securities under which the issuer, in this case, the company, owes the holders a debt and is obligated to pay them interest (the coupon) and to repay the debt on a specific future date (maturity date). This allows companies to raise the necessary capital without giving up control, as they would if they were issuing stock and selling ownership in the company.