Which statement about bonds is accurate?

• A. Ownership stake in the company
• B. Fixed interest payments with fluctuating principal
• C. Bonds are debt obligations typically paying fixed interest and returning principal at maturity
• D. Stocks are debt instruments.

Answer: (C)

Bonds are a form of debt issued by companies, governments, or other entities. When you buy a bond, you’re lending money to the issuer, who in turn promises to pay you regular interest payments and to return the principal (the face value) when the bond matures. This setup means bondholders are creditors, not owners of the issuing entity, and the payments are structured rather than speculative equity returns.

The statement aligns with this standard structure: bonds are debt obligations that typically provide fixed interest payments and the return of principal at maturity. While there are variations (such as zero-coupon or floating-rate bonds), the core idea is that you receive regular interest and the principal back at the end of the term.

Think of the contrast with stocks: stocks confer ownership in a company and may pay dividends, which aren’t guaranteed. Saying stocks are debt instruments is incorrect because equities represent ownership rather than a promise to repay a loan.