In this financial instrument, a borrower uses the money to fund its operation, and the investor receives interest on the investment as a form of payback for the loan issued.a.Earningsb.Revenuec.Bondsd.Shares of stocks
Question
In this financial instrument, a borrower uses the money to fund its operation, and the investor receives interest on the investment as a form of payback for the loan issued.a.Earningsb.Revenuec.Bondsd.Shares of stocks
Solution
The correct answer is c. Bonds. Here's why:
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A bond is a type of financial instrument that is essentially a loan made by an investor to a borrower, typically corporate or governmental.
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The borrower, or issuer of the bond, uses the money they receive from the sale of the bond to fund their operations. This could include anything from funding daily operations to financing new projects or initiatives.
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In return for this loan, the issuer of the bond agrees to pay the investor a specified amount of interest at regular intervals. This interest is the investor's return on their investment in the bond.
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Finally, at the end of a specified period of time (known as the bond's maturity date), the issuer of the bond repays the principal amount of the loan to the investor.
So, in this scenario, the financial instrument that involves a borrower using the money to fund its operation and the investor receiving interest on the investment as a form of payback for the loan issued is a bond.
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