When a corporation issues a bond
A)it is called equity capital.
B)the purchaser of the bond assumes ownership rights in the corporation.
C)it is making a promise to pay interest each year but not repay the principal.
D)it is called financing through the stock market.
E)it is making a promise to pay interest each year and to repay the principal at a stated time in the future.

Question

Quizplus · Accepted Answer

When a corporation issues a bond, it is making a promise to pay interest each year and to repay the principal at a stated time in the future. This is known as debt financing, in which the corporation raises money by borrowing from investors through the issuance of bonds. The purchaser of the bond does not assume ownership rights in the corporation, nor is the issuance of a bond considered equity capital. Financing through the stock market typically involves the issuance of stocks or shares, not bonds.

When a Corporation Issues a Bond