Question 20

Which of the following best describes a bond?

A. A type of loan with a fixed rate of return that can be outstanding indefinitely.
B. A debt security that gives an investor an ownership share in the entity issuing the bond.
C. A debt instrument whose rate of return can fluctuate based on market conditions.
D. A debt security that typically pays an investor a fixed rate of return for a specified period of time.

A bond is a financial contract where a borrower repays a borrowed amount with interest over time, issued by different entities such as corporate, municipal, state, and Treasury entities.

Explanation:

A bond is a financial contract where a borrower agrees to repay the borrowed amount with interest over time. Various types of bonds exist, such as corporate bonds, municipal bonds, state bonds, and Treasury bonds, issued by different entities. The return on a bond includes compensation for delaying consumption, adjustment for inflation, and a risk premium based on the borrower's riskiness.

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