What is a bond?

• A. A debt incurement loan that certifies a contract between the borrower and the lender, providing a method to raise capital for general purposes or for a specific purpose.
• B. An equity security representing ownership in a company.
• C. A loan offered by a bank with no repayment obligation.
• D. A government grant for infrastructure projects.

Answer: (A)

A bond is a debt instrument in which the issuer borrows money from investors and agrees to repay the principal at a set future date (maturity) and to make regular interest payments along the way. This arrangement lets the issuer raise capital for general purposes or a specific project, while investors lend money in exchange for the contractual promise of repayment and interest. That description matches the idea of a bond as a formal loan backed by an obligation to repay, which is why it’s the best fit.

Equity securities, by contrast, represent ownership in a company rather than a loan. A bank loan with no repayment obligation doesn’t exist in practice—loans involve regular repayment of principal and interest, not a perpetual, non-repayable arrangement. A government grant is a form of financial assistance that does not obligate repayment, so it isn’t a bond.