What are the differences between the term loan and a bond and Discuss advantages and disadvantages of each.
Difference between Loan and Bond
Bond | Loan | |
Ownership | Bonds can be sold by firm or government | loan taken by consumer looking to borrow money |
Interest rates | Usuaslly fixed interest rates for the period of the bond | Interest rates can be fixed but are often variable and changes with the base rates |
Trading | These are often traded in the bond market | Usually fixed with the Banks |
Risk | Generally low risk | Unsecured loans have very high risks |
Advantages and Disadvantages of Bonds
Advantages | Disadvantages |
The volatility of bonds is lower than equities | bonds are subject to various risk such as credit risk, prepayment risk etc |
bonds are much safer investments than stocks | Price change in the bond will immediately affect mutual funds that hold these bonds |
Bonds are often liquid | Bond holders may suffer losses if the company goes bankrupt |
bonds have fixed interest payments | Bonds are callable, company can choose to payoff the bond early |
Advantages and Disadvantages of Loan
Advantages | Disadvantages |
They are not repayable on demand | Larger loans have certain condition which need to be adhere |
Can be tied for the lifetime of the assets or equipment | Loans are not much flexible. We have to pay interest on the funds which are not in use |
Interest rates may be fixed for the term | Interest rates on unsecured loans are very high |
While payment of interest no need to give share of the profit | Charges are levied if loan is repayed before the end of the loan term |
What are the differences between the term loan and a bond and Discuss advantages and disadvantages...
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