Finance Formulas / July 19, 2018 / Kenley Hopper
You can use the bond price formula to determine the value of a bond. While it involves some number crunching, it’s a fairly straightforward process because future cash flows to the investor (the bondholder) are always specified ahead of time. The issuer has to meet the interest and principal payments as they come due, or the bonds will go into default – something that can have devastating consequences for the issuer and, in the case of corporate bonds, its shareholders.
The higher the debt ratio, the more leveraged a company is, implying greater financial risk. At the same time, leverage is an important tool that companies use to grow, and many businesses find sustainable uses for debt.
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