Lulu purchased a security that promises to pay $50 twice a year from January 15, 2015 to January 15, 2020 and then pay $1,000 on January 15, 2020. The security is a debt to the company that issued it. The security is a
A) net investment to the company that issued it.
B) bond.
C) physical capital.
D) share of stock.
E) depreciating asset.

Question

Quizplus · Accepted Answer

The security described is a bond, which is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). It promises to pay periodic interest payments and to return the principal, or face value, on a specified date, known as the maturity date. In this case, the $50 payments are the interest payments, and the $1,000 payment at the end is the return of the principal.

Lulu Purchased a Security That Promises to Pay $50 Twice