Bonds are a form of which financing?

• A. Equity financing
• B. Hybrid financing
• C. Donor funding
• D. Debt financing

Answer: (D)

Bonds represent raising capital by borrowing from investors, making them a form of debt financing. A bond is basically a loan: the issuer receives cash from buyers and agrees to pay periodic interest (coupons) and to repay the principal at maturity. This creates a liability on the issuer’s books and obligates them to make payments regardless of profits, distinguishing it from equity where owners share in profits and there is no mandatory repayment.

In contrast, equity financing involves selling ownership stakes and does not require fixed repayments, while donor funding is typically grants with no repayment obligation, and hybrid financing blends characteristics of debt and equity (like convertible instruments). The essential idea is that bonds are debt obligations, not ownership interests.