Multiple Choice
A mortgage bond is a corporate bond secured by which of the following?
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11. Long Term Liabilities
Introduction to Bonds and Bond Characteristics
Struggling with Financial Accounting?
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Which of the following is true concerning bonds?
A
Bonds represent ownership in a company, similar to common stock.
B
The interest paid on bonds is called dividends.
C
Bonds are a form of debt financing issued by corporations or governments to raise capital.
D
Bondholders have voting rights in the issuing company.
Verified step by step guidance1
Understand the nature of bonds: Bonds are financial instruments used by corporations or governments to raise capital. They represent a form of debt financing, not ownership in the company.
Clarify the distinction between bonds and stocks: Unlike common stock, bonds do not provide ownership rights or voting rights in the issuing company. Bondholders are creditors, not owners.
Explain the interest paid on bonds: The interest paid on bonds is referred to as 'coupon payments,' not dividends. Dividends are payments made to shareholders, while coupon payments are made to bondholders as compensation for lending money.
Highlight the correct statement: Bonds are indeed a form of debt financing issued by corporations or governments to raise capital. This is the accurate description of bonds among the options provided.
Review the incorrect statements: Bonds do not represent ownership, bondholders do not receive dividends, and bondholders do not have voting rights in the issuing company. These are common misconceptions about bonds.
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