Debentures pay higher rates than secured debts, but there is a risk that an issuer will be unable to pay the investor, according to TheFreeDictionary. Debentures are typically issued by companies with good standing, but these bonds are unsecured and have no collateral.
TheFreeDictionary further notes that government debentures in particular are risk-free. For instance, governments can print more money or raise taxes if there is trouble repaying the debts. Subordinated debentures are bonds that fall below any debts incurred by a company. If a company is liquidated, all debts must be settled before payment is issued to the investor; however, these types of bonds carry even higher interest rates. Converted debenture is another type of bond that can be converted into stock, according to Investopedia.
TheFreeDictionary adds that a major drawback is the fact that the investor then becomes a creditor until the debt is paid in full. Moneycontrol notes that an issuer may not pay the bond on time. Debentures rely solely on the reputation and credit rating of that particular company and are detailed in a contract where it is specified that the issuer promises to pay the interest and principal on time. Investopedia mentions another disadvantage with regards to convertible bonds since the issuer pays a lower interest rate if there is a convertible option on the bond.Learn More
The major advantage of union strikes is that they allow workers to protest action by an employer that they feel is unfair without the risk of firing or punishment. A disadvantage of strikes is that they can cause financial damage to the company involved since no work is being performed.Full Answer >
Sponsorship can be a positive way to promote a business and help local causes, but there is the risk that the sponsored party may do something the sponsoring business does not approve of. Businesses can sponsor sports teams, youth clubs, theater productions, and other public activities.Full Answer >
According to Investopedia, the main advantage of the Capital Asset Pricing Model, or CAPM, is that it helps investors calculate risk when contemplating high-risk investments. The main disadvantages of CAPM are that some studies question its validity and that it may not always be accurate in its risk assessment.Full Answer >
Equity financing is when a company sells shares of stock to an investor or group in exchange for funding, according to Entrepreneur. Relative to debt financing, another common funding source, equity financing has strengths and weaknesses.Full Answer >