Bonds are debt that the company issues. The company maintains managerial control.
Bonds are senior to equity in the case of default.
B. Explain the difference between the real interest rate and the nominal interest rate. C. Explain why an economy with a high marginal efficiency of investment will tend to have high real interest rates. Such an economy would have a high demand for loanable funds because businesses would find it profitable to invest in new projects, no matter what the rate of expected inflation. Thus real interest rates would be driven higher. D. Explain the concept of risk aversion.