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A bond issuer owes the buyer which two payments?
AInterest on a schedule and principal at maturity
BDividends each quarter and principal at maturity
CInterest on a schedule and a share of the profit
DDividends each quarter and a share of the profit
Answer & Solution
Correct answer: A. Interest on a schedule and principal at maturity
1. Bonds are long-term debt obligations of corporations and governments, with a bond certificate issued as proof of the obligation.
2. The issuer must pay the buyer a fixed amount of money called interest, stated as the coupon rate.
3. That interest is paid on a regular schedule, typically every six months.
4. The issuer must also pay the bondholder the amount borrowed, called the principal or par value, at the maturity date.
5. Bonds are usually issued in units of $1,000 and have initial maturities of 10 to 30 years.
6. Dividends and profit shares belong to equity holders, and a bondholder is a lender rather than an owner, so those options confuse the two instruments.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.4 Raising Long-Term Financing_
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