When a corporation issues a bond
A) it is called equity capital.
B) it is making a promise to pay interest each year but not repay the principal.
C) it is making a promise to pay interest each year and to repay the principal at a stated time in the future.
D) it is called financing through the stock market.
E) the purchaser of the bond assumes ownership rights in the corporation.

Question

Quizplus · Accepted Answer

When a corporation issues a bond, it is making a promise to pay interest each year and to repay the principal at a stated time in the future. This is known as debt capital, as opposed to equity capital (which involves issuing stock and giving ownership rights to shareholders). The purchaser of a bond does not assume ownership rights, but rather becomes a creditor of the corporation.

When a Corporation Issues a Bond