Which of the following best illustrates why a bond is a type of loan?
A)The issuers of bonds regularly pay interest on the face value of the bond to the buyers of those bonds.
B)When a company issues a bond,the buyer of that bond becomes a part owner of the issuing company.
C)Federal and local governments issue bonds to finance long-term projects.
D)When an investor buys a bond from an issuer,the investor is giving money to the issuer,with the assurance it will be repaid at a date in the future.
E)Bonds are typically bought by banks,so the source of funds is the same.

Question

Quizplus · Accepted Answer

When an investor buys a bond from an issuer, the investor is essentially lending money to the issuer, with the assurance that it will be paid back with interest at a future date. This is the basic premise of a loan, making Option D the best choice. Option A and C are examples of how bonds are used, but do not explain why they are a type of loan. Option B is incorrect as buying a bond does not make the buyer a part owner in the issuing company. Option E is also incorrect as bonds are not exclusively bought by banks, and even if they were, it does not explain why a bond is a type of loan.

Which of the Following Best Illustrates Why a Bond Is