Multiple Choice
In the context of bonds, a bond buyer is a:
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11. Long Term Liabilities
Introduction to Bonds and Bond Characteristics
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Which type of bond requires payment of the full principal amount at the end of the loan term?
A
Term bond
B
Callable bond
C
Convertible bond
D
Serial bond
Verified step by step guidance1
Understand the definition of a term bond: A term bond is a type of bond where the entire principal amount is paid at the end of the loan term, rather than in installments over time.
Compare the term bond with other types of bonds: Callable bonds can be redeemed by the issuer before maturity, convertible bonds can be converted into equity, and serial bonds have staggered principal payments over the loan term.
Identify the key characteristic of a term bond: The full principal payment is made at the end of the loan term, which distinguishes it from serial bonds that involve periodic principal payments.
Review the options provided in the question and eliminate those that do not match the definition of a term bond.
Conclude that the correct answer is 'Term bond' based on its unique feature of paying the full principal amount at the end of the loan term.
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