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Hey John
What is a loan stock and why do companies pay interest at the par value instead of the money they are getting?
If I issue a loan stock and get $400 shall I not be paying interest on this amount rather than the par value which is lesser!
Loan stock is the same as loan notes, bonds, and debentures and is long-term borrowing by the company.
Interest is always paid on the nominal value, and usually they are originally issued at the nominal value (although they don’t have to be). What happens to the market value after they have been issued is of no relevant to the company – the market value is what one investor will pay to buy from another investor (not from the company).
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