Kembara's Financial Solutions - Bond
The issuance of IOUs (IOU = "I owe you") by borrowers, generally in the form of bonds, is the third significant method that savers and borrowers are connected in the financial markets. The banks are not involved because these IOUs are issued straight to the investors. An additional form of debt that requires repayment and on which the borrower must pay interest is borrowing money by issuing bonds. If a borrower needs to raise £100 million, it can divide the sum into one million bonds, or IOUs, with each bond representing £100. The borrower might pledge to repay the bondholders their £100 in ten years while agreeing to pay them interest every year up until that time. In this example, we'll assume that the business pays the lender 7% in interest annually.
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