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Face-Amount Certificate Company

What is 'Face-Amount Certificate Company'

A type of investment firm that issues debt securities to its investors. These securities are called face-amount certificates and are backed by security interest on assets such as real property or other securities. This is similar in nature to mortgage bond debt financing.

Explaining 'Face-Amount Certificate Company'

This technique allows a company to obtain financing at relatively low interest rates, since its debt is backed by specific tangible assets under the company's control. Investors who hold face-amount certificates are usually paid a fixed amount of annual interest and are refunded the principal (or face amount) of their securities at a specified termination date.


Further Reading


Financing a foreign war: Jacob H. Schiff and Japan, 1904–05
www.jstor.org [PDF]
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Negotiated vs. Competitive Debt FinancingNegotiated vs. Competitive Debt Financing
heinonline.org [PDF]
Page 1. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Page 2. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

INVESTMENT COMPANY ACT OF 1940INVESTMENT COMPANY ACT OF 1940
heinonline.org [PDF]
Page 1. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Page 2. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.

Investment Company Act of 1940Investment Company Act of 1940
heinonline.org [PDF]
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Financial engineering in corporate finance: An overviewFinancial engineering in corporate finance: An overview
www.jstor.org [PDF]
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Q&A About Face-Amount Certificate Company


Why would someone buy a FAC instead of just investing in corporate bonds directly?

Investors can purchase more shares for less money when they invest in a fund that holds many different securities rather than buying those same securities individually.

What is a Face-Amount Certificate Company?

A type of investment firm that issues debt securities to its investors. These securities are called face-amount certificates and are backed by security interest on assets such as real property or other securities. This is similar in nature to mortgage bond debt financing.

What gives FACs their value?

The value of a FAC comes from its ability to generate cash flows through coupon payments and principal repayment at maturity.

How does FAC enable lenders to charge lower interest rates?

FACs are secured by enforceable legal claims or liens on collateral, enabling the lender to charge lower interest and, subsequently, reduce the costs to borrow money.

What is Face-Amount Certificate Company?

Face-Amount Certificate Company (FAC) is a type of financial security that enables lenders to charge lower interest rates and subsequently reduce the costs to borrow money.

What do FACs have in common with other types of securities?

They both provide investors with protection against default risk.

What does this company issue?

The company issues face amount certificates, which are backed by security interest on assets such as real property or other securities.

Who holds these certificates?

Investors who hold face amount certificates are paid a fixed amount of annual interest and refunded their principal (or face amount) at a specified termination date.

What does the company obtain through this process?

The company obtains financing at relatively low interest rates, since its debt is backed by specific tangible assets under the control of the company.

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