when the debt issue matures the issuer repays the face value of the asset to the investors face value also referred to as par value differs across the various types of debt issues for example the face value on a corporate bond is typically 1 000 municipal bonds often have 5 000 par values and federal bonds often have 10 000 par values 
short term bills typically have maturities between one and five years medium term notes mature between five and ten years while long term bonds generally have maturities longer than ten years certain large corporations such as coca cola and walt disney have issued bonds with maturities as long as 100 years the process of debt issuanceissuing debt is a corporate action which a company s board of directors must approve if debt issuance is the best course of action for raising capital and the firm has sufficient cash flows to make regular interest payments on the issue the board drafts a proposal that is sent to investment bankers and underwriters corporate debt issues are commonly issued through the underwriting process in which one or more securities firms or banks purchase the issue in its entirety from the issuer and form a syndicate tasked with marketing and reselling the issue to interested investors the interest rate set on the bonds is based on the credit rating of the company and the demand from investors the underwriters impose a fee on the issuer in return for their services the process for government debt issues is different since these are typically issued in an auction format in the united states for example investors can purchase bonds directly from the government through its dedicated website treasurydirect a broker is not needed and all transactions including interest payments are handled electronically debt issued by the government is considered to be a safe investment since it is backed by the full faith and credit of the u s government since investors are guaranteed they will receive a certain interest rate and face value on the bond interest rates on government issues tend to be lower than rates on corporate bonds the cost of debtthe interest rate paid on a debt instrument represents a cost to the issuer and a return to the investor the cost of debt represents the default risk of an issuer and also reflects the level of interest rates in the market in addition it is integral in calculating the weighted average cost of capital wacc of a company which is a measure of the cost of equity and the after tax cost of debt one way to estimate the cost of debt is to measure the current yield to maturity ytm of the debt issue another way is to review the credit rating of the issuer from the rating agencies such as moody s fitch and standard poor s a yield spread over u s treasuries determined from the credit rating can then be added to the risk free rate to determine the cost of debt there are also fees associated with issuing debt that the borrower incurs by selling assets some of these fees include legal fees underwriting fees and registration fees these charges are generally paid to legal representatives financial institutions and investment firms auditors and regulators all of these parties are involved in the underwriting process frequently asked questions