ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When you purchase or invest in a bond, you lend money to the issuing institution, which pays them interest as returns. The purpose of bonds is to raise capital. Businesses, organizations, and the government often issue bonds and sell iOUs to the public.

Detailed explanation-2: -Question – When you buy a, you are loaning money to an organization? A government is typically the recipient of loans, and purchasing bonds is one way to do this. Therefore, Bond is the right response.

Detailed explanation-3: -What is a corporate bond? A bond is a debt obligation, like an Iou. Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures.

Detailed explanation-4: -By buying a bond, you’re giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year. Unlike stocks, bonds issued by companies give you no ownership rights.

Detailed explanation-5: -The main difference between stocks and bonds is that stocks give you partial ownership in a corporation, while bonds are a loan from you to a company or government.