ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Bonds are debt instruments in which the investor loans money to an entity. The entity borrows money at a fixed interest rate for a specific time duration. Such an entity can be government, banks or corporates. Hence, when the government issues bonds, they are known as government bonds.

Detailed explanation-2: -The correct answer is b: Bonds are loans that investors make to a corporation or a government body in exchange for regular interest payments and the return of principal at a future date.

Detailed explanation-3: -Government bonds are known as gilts in the UK and are an investment vehicle that provides a fixed rate of return until their expiry. Gilts are a loan from the bondholder to the government. The issuing government pays a fixed interest rate to the investor until the bond reaches its maturity date.

Detailed explanation-4: -For example, an investor may pay $800 to purchase a five-year, zero-coupon bond with a face value of $1, 000. The company pays no interest on the bond for the next five years, and then, at maturity, pays $1, 000-equal to the purchase price of $800 plus interest, or original issue discount, of $200.