Which one of the following statements is correct?
A)Stock is a form of debt financing.
B)Stock must be repaid at maturity.
C)Bonds are a form of debt financing.
D)Bonds do not have to be repaid at maturity.
E)Interest payments to bondholders are paid at the discretion of the board of directors.

Question

Quizplus · Accepted Answer

Bonds are a form of debt financing, meaning the issuer (i.e., borrower) is borrowing money and must repay the principal amount at maturity plus interest payments to the bondholders. Stocks, on the other hand, represent ownership in a company and are a form of equity financing. Option A is incorrect because stock is not debt financing, but equity financing. Option B is incorrect because stocks, unlike bonds, do not have a maturity date or repayment obligation. Option D is incorrect because bonds must be repaid at maturity. Option E is incorrect because interest payments to bondholders are obligated and must be paid periodically (usually semi-annually) according to the terms of the bond agreement.

Which One of the Following Statements Is Correct