Question

From a firm’s point of view, how is a bond similar to a bank loan? How are they different?

Short answer

From an establishment's point of view, a bond is similar to a bank loan because in both of the cases establishment has to repay the amount and also pay interest. The difference is the structure of who is being asked for lend.

Step-by-step solution

Step 1.  Description 

A bank loan is when a bank offers to loan capital to clients for a pre-determined time period. A bond is purchased through various bondholders, who may not have as much information on the purchaser.

Step 2. Similarity from a firm's point of view

Similarity from a firm's point of view Still, the establishment has to repay the main amount and also an interest on the main amount with time in both of the cases, If a firm issues a bond or takes a bank loan.

Step 3. Differences

The main difference is that loans are generally fixed with the original bank but bonds are constantly bought and ended on bond request; the value of the bond can go over and down. The bank is more established and has more information on who it gives money to, making it the easier more common choice.