8.5 Make up ten English sentences using words from the active vocabulary of the lesson

8.6 Which passage of the text contains information on:

1) two types of bonds;

2) the possibility of bonds conversion;

3) possible requirements of lenders.

8.7 Are these statements true, false, or not mentioned in the text?

1. Governments can issue either government or corporate bonds.

2. A company can meet long term needs by decreasing its debts.

3. Huge corporations usually issue unsecured bonds when they do extensive research.

4. The terms of bond issue are given in the indenture agreement.

5. Conversion privilege is an advantage of some stock agreements.

6. Government bonds are also known as government obligations.

8.8 Choose the correct answer

What is a disadvantage of long term loans?

1. Corporations issue corporate bonds.

2. The company pays the interest regularly according to the indenture agreement.

3. Sometimes a lender may require the firm to limit or eliminate dividends to stockholders.

4. If the price of the company’s common stock is going up, the investors can profit from conversion.

8.9 Choose one phrase that expresses the main idea of the text

1. Issuing bonds.

2. Financing a business.

3. The protection of lenders’ financial positions.

4. Long-term financing.

8.10 Substitution drill

Statement: If the price of the stock remains steady or is going down, the investors can hang on to their bonds.

Example: when

When the price of the stock remains steady or is going down, the investors can hang on to their bonds.

1. bondholders	4. keep on	7. stable
2. is	5. may	8. decreases
3. their debentures	6.value	9. assets

8.11 Read the dialogue

A company is about to launch an expensive program while its revenues are too small to cover the expenses. The manager is consulting his financial adviser

Man: I’d just like to know the advantages and disadvantages of debt financing.

Adv: Are you going to issue bonds or just to take out a loan?

Man: Well, it depends. If we manage to find an institution that will not demand any collateral, we’ll try to obtain a loan.

Adv: But don’t you know that you’ll have to pledge collateral no matter what kind of debt you’re in for?

Man: Do you mean that even bonds issue needs collateral to back it up?

Adv: Why, yes. Unless you have a solid financial reputation, of course.

Man: We’ve just started, you know. Anyway, I’ll have to report to the Board of Directors on Thursday. And meanwhile, how about talking about the advantages?

Adv: Well, compared to other types of securities, long term loans and bonds have at least two advantages. First, the holders are just creditors, not owners. This provides you with some flexibility in using the funds you have borrowed.

Man: You mean that the holders have no voting right and can’t participate in the operations of the corporation?

Adv: You’ve got it. And the second one is that the interest you pay to these creditors is tax deductible.

Man: Oh, I see. We subtract this interest from the company’s earning before taxes are calculated?

Adv: Right. And this eventually reduces the amount of corporate income tax.

Man: That sounds great!

Adv: Don’t jump to conclusions! There are some disadvantages as well. First, these obligations must be repaid. You will have to plan a huge repayment at some fixed point in the future.

Man: I bet it will cause all of us many problems!

Adv: And moreover, bond agreements often contain restrictive provisions that may limit your flexibility in handling the corporation’s future finances.

Man: Yes, I see. We’ll have to think twice before creating a debt in either way. Anyway, thanks a lot for your information!

Words and expressions

to launch (v)	- начинать
advantage (n)	- преимущество
no matter what...	- независимо от того ...
unless you have…	- если только вы не имеете ...
to compare (v)	- сравнивать
compared to	- в сравнении с
to vote (v)	- голосовать
voting rights	- права голоса
to participate (v)	- принимать участие
you’ve got it	- вы попали в точку
to deduct (v)	- скидывать, сбавлять; вычитать
deductible (adj)	- вычитаемые (из сумм, облагаемых налогом)
to subtract (v)	- вычитать, сбавлять
to figure (v)	- считать, подсчитывать
to jump to conclusions	- спешить с выводами
obligations (n)	- обязательства
to fix (v)	- устанавливать
fixed	- установленный
I bet	- бьюсь об заклад; здесь: я полагаю