Methods of Raise Capital Essay Example | Topics and Well Written Essays - 1750 words

Methods of Raise Capital - Essay Example Bonds are the best way to raise capital of large companies. Roughly about 25% of the capital comes through bonds. Companies get benefit greatly from the issuance of bonds because investors pay a lower interest rate than the rates of other types of borrowing. Also, because the interest paid on bonds is exempted from business taxes. Therefore, companies must make interest payments even if profits do not appear. If there is doubt from investors that the company does not have the capability to meet the obligations of interest, or it could refuse to buy bonds or that the demand for interest rate will be higher to compensate them for their increased risk. (U.S.Department, 2009). One of the most common methods of raising capital is through bonds , where we define bonds are loans made to governments and institutions by investors as the investor get a specific interest rate because he invests his money in good investment idea. In return, the borrower gets the money it needed, also the investo r gets the original amount invested (the principal amount or value of the bond issue) and can issue bonds for a long period of up to 20 and 30 years. Bonds are classified according to their quality bonds or prospects for reimbursement. Bonds do not usually find the same attention, such as equity from investors and the media. Since the bonds offer many advantages better than stock. In addition, safety of bonds is over stocks and more confident. (Mohammed, 2005). There are many companies planning to raise their capital. For example, Lloyds Bank announced that it will raise the bank's capital to 7.5 billion pounds, through the exchange of bonds. (Glover, 2009). The bond market can be divided into three parts: Domestic bonds: Shall be handled through the local currency and it is issued by domestic borrowers. Foreign bonds: Shall be handled by the local currency and is also trading in the domestic market but issued from foreign borrower and always common on the comprehensive follow-up of power. Eurobonds: Eurobonds is underwriting by multinational banks and these bonds are not taken by the trading in all markets and specific national or local markets, these bonds are currently has role in the production of some of the major currencies and some small currencies. There are many types of bonds are offered in the market. These bonds can be dividing it as follows: Straight bonds: Can be called fixed-income securities as they have a fixed price and are paid on time. Bonds paid in part: These bonds the same straight bonds, but there is a difference that the investor must pay a certain portion of the capital from 0 to 33 on the closing date and paid the remaining of the capital after 6 months. Zero-coupon bond: These bonds also the same straight bonds, but the difference is that it does not have a fixed time for the payment of benefits, but there is a problem in high-value discounts and must pay the original amou