Bonds are a form of long term debt. You can raise money by issuing bonds that will have interest paid annually but which must be repaid in full after three years (decision periods).
Note: Your course will use either Bonds or Long Term Debt, but not both. The Bonds decision was replaced by Long Term Debt in September 2008. All new courses will use Long Term Debt instead.
The Bonds decision screen is used to raise cash by issuing bonds. This increases your level of long-term debt.
- The white box at the bottom of the 'Face Value' column is used to enter the amount of cash you wish to borrow.
- The 'Coupon Rate' column refers to the annual interest paid on the bonds and it is affected by your firm's debt to equity ratio.
- The 'Market Value' column refers to the value of the bond issue in financial markets at the beginning of the next period.
- The 'Interest' column shows the interest payments due to be paid on bonds that have been previously issued.
Note that bonds are automatically repaid when they fall due by issuing new bonds. If you have enough cash to repay the bonds without issuing new bonds then you should delete the default decision, i.e. put a $0 in the "Face Value" column.