A promise to repay a company's, or country's, debt is what kind of investment?

A promise to repay a company's, or country's, debt is what kind of investment?

• A. Stock
• B. Bond
• C. Mutual Fund
• D. Annuity

Answer: (B)

A promise to repay a company's or country's debt is a debt security called a bond. When an issuer needs money, it borrows by selling bonds to investors. In return, investors lend their money and receive periodic interest payments and the return of the principal at a stated maturity date. This makes bonds a direct promise to repay debt. This differs from stocks, which represent ownership in a company with no guaranteed return of principal. Mutual funds are pools of money from many investors managed to invest in a mix of assets, not a single debt obligation. Annuities are insurance contracts that provide periodic payments to the holder, often for retirement, rather than a loan repayment from an issuer.

A promise to repay a company's or country's debt is a debt security called a bond. When an issuer needs money, it borrows by selling bonds to investors. In return, investors lend their money and receive periodic interest payments and the return of the principal at a stated maturity date. This makes bonds a direct promise to repay debt.

This differs from stocks, which represent ownership in a company with no guaranteed return of principal. Mutual funds are pools of money from many investors managed to invest in a mix of assets, not a single debt obligation. Annuities are insurance contracts that provide periodic payments to the holder, often for retirement, rather than a loan repayment from an issuer.