Final answer:
A competitive bid offering for general obligation bonds necessitates an Official Statement, Bid Form, and Legal Opinion. These documents ensure a transparent bond issuing process and provide assurance on the legality and terms of the bond, which are critical for attracting investors under conditions of imperfect information, similar to banks assessing loans.
Step-by-step explanation:
A competitive bid offering of general obligation bonds typically requires the following three documents: an Official Statement, a Bid Form, and a Legal Opinion.
- Official Statement - This document provides detailed information about the bond offering, including the terms of the bond, the financial status of the issuer, and other pertinent details that investors need to know.
- Bid Form - This is used by the potential buyers of the bonds to submit their bids. It records the terms of the bid, including the price and the yield that the bidder is willing to accept.
- Legal Opinion - Provided by an attorney or a legal firm, it confirms the legality of the bond issue and that the issuer is authorized to issue the bonds.
Comparing a bond to a bank loan, both are methods of borrowing money and require paying interest. The critical difference is in the audience that needs persuasion.
Bonds require the issuer to persuade several individual bondholders rather than a single entity (like a bank), which might be more familiar with the firm's financial situation. Therefore, bank loans might be more prevalent in scenarios where there is imperfect information.