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Ch.1 · Comparing Financial Products · easy

Which of the following is a characteristic of debt instruments?

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EXPLANATION

Debt instruments (bonds, debentures, NCDs) represent borrowing — the issuer pays interest (fixed or floating) and repays the principal at maturity. They do not represent ownership, unlike equity.

A.They carry a fixed or floating interest obligation and have a defined maturity [✓ Correct]

B.Returns are linked to company profitability

C.They represent ownership in a company

D.Investors receive dividends based on board discretion

EXPLANATION

Debt instruments (bonds, debentures, NCDs) represent borrowing — the issuer pays interest (fixed or floating) and repays the principal at maturity. They do not represent ownership, unlike equity.

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