Multiple Choice
A corporate bond secured by various assets of the issuing firm is called a:
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11. Long Term Liabilities
Introduction to Bonds and Bond Characteristics
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The entity that promises to make the interest and maturity payments for a bond issue is called the:
A
Underwriter
B
Issuer
C
Trustee
D
Holder
Verified step by step guidance1
Understand the key terms in the problem: A bond is a financial instrument where an entity borrows money from investors and promises to pay interest periodically and repay the principal amount at maturity.
Identify the roles involved in a bond issue: The 'Issuer' is the entity that borrows money and is responsible for making interest and maturity payments. The 'Underwriter' helps sell the bonds to investors, the 'Trustee' ensures compliance with bond terms, and the 'Holder' is the investor who owns the bond.
Focus on the question: The problem asks which entity promises to make the interest and maturity payments. This responsibility lies with the 'Issuer' of the bond.
Clarify why the other options are incorrect: The 'Underwriter' does not make payments; it facilitates the bond issuance. The 'Trustee' oversees the bond terms but does not pay. The 'Holder' receives payments, not makes them.
Conclude that the correct answer is 'Issuer' based on the definition and responsibilities of the entities involved in a bond issue.
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