Multiple Choice
Which statement best describes how an investor makes money from investing in debt securities?
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7. Receivables and Investments
Introduction to Investments in Securities
Struggling with Financial Accounting?
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Which of the following best describes the bond rate for large U.S. corporations?
A
It is the cost of borrowing funds through the issuance of bonds.
B
It is the annual dividend paid to shareholders.
C
It is the interest rate paid on savings accounts.
D
It is the rate at which the Federal Reserve lends money to banks.
Verified step by step guidance1
Step 1: Understand the concept of 'bond rate' in the context of financial accounting. The bond rate refers to the cost of borrowing funds through the issuance of bonds, which is the interest rate that corporations agree to pay bondholders for lending them money.
Step 2: Analyze the options provided in the question. The bond rate is not related to dividends paid to shareholders, as dividends are a distribution of profits to equity holders, not a borrowing cost.
Step 3: Eliminate the option regarding the interest rate paid on savings accounts. This rate is associated with personal banking and savings, not corporate borrowing through bonds.
Step 4: Exclude the option about the Federal Reserve lending money to banks. This rate is known as the 'discount rate' and is unrelated to corporate bond issuance.
Step 5: Confirm that the correct description of the bond rate is: 'It is the cost of borrowing funds through the issuance of bonds,' as this aligns with the definition of bond rate in financial accounting.
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