Understanding Corporate Bonds, Interest Rates, and Issuance Prices

Abstract

Businesses evolveover time and the degree of risk and the needs for financing evolve, too.  In the early stages of a business, thebusiness is small and most of the financing comes from the entrepreneur andfrom retained earnings of the business. After a business achieves a certain size, external financing is neededsuch as venture capital, new stockholders’ equity, and bonds.  Over the last one hundred years, individualsproviding external funding to businesses have demanded more and betterinformation.  Currently, Sarbanes-Oxley requiresboth information and evidence that the information is correct.  Thus, companies are required to have internalcontrols that validate the information provided to stakeholders and to have theauditors confirm the quality of the internal control mechanisms.