Does issuing bonds at a premium assure a favorable impact on cash flow&income?
On One Hand: Premium Bonds Raise More Capital Initially.Issuing bonds at a premium is a way to maximize the amount of capital received upfront, and has a positive effect on cash flow and net income. Bonds issued at a premium are priced higher than those issued at par or at a discount, raising the initial cash inflow.On the Other: Premium Bonds Require Higher Interest Payments.There is a reason that certain bonds are issued at a premium. Bonds are sold at a premium to compensate for the fact that their interest yield is higher than the prevailing rate. This being the case, issuers of premium bonds will be required to submit higher interest payments to investors, causing a more negative effect on cash flow and net income over time than lower priced bonds.Bottom LineIssuing bonds at a premium is a tactic designed to equalize the attractiveness of bonds with varying coupon rates. Because of this, bonds issued at a discount, at par, or at a premium are likely to have the same long term fina
