The debt financing is where an entrepreneur has to borrow money from a lending institution or persons for the purpose of obtain capital. The main advantage is that one has the prerogative over the use of the borrowed money. The business person can choose the kind of business he wants to invest in. The main disadvantage of debt financing is that failure to repay the borrowed capital might attract negative sanctions, that might include seizure of assets. Equity financing is different in the sense that one raises capital through the sale of share in a company. Unlike in the debt financing, capital raised through the equity financing does not attract any interests. The main disadvantage, though, is that raising capital through equity financing might take much time.
Time value of money
The concept indicates that time is an important factor in determining the value of money. The sooner the money is received, the more valuable it becomes depending on the existing economic conditions. There is a correlation between value of money and valuation of bonds. The value of money, including the interest earned will determine how much the bond is likely to yield. The information is important in making informed choices for the business.
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Discuss bonds at par, premium, and discounted
Bond at per means that the security is trading at the face value, without any interests. The premium bonds earn interests above the face value of the security. The main importance is that can reduce the risks of losing the security by investing only the interests earned on the bond. A discounted bond attracts lower interests that the actual one in the market. Therefore, the differences between the three types of bonds is how much interest is gained.
Coupon and Market Rate
The coupon rate is the values/yield that is paid by an investor at per or above the face value of a bond/security. The market rate is the actual price that is charged in the market for goods and services.
