What happens when a person buys a company's bond?

What happens when a person buys a company's bond?

• A. They become a stockholder in the company
• B. They have lent money to the company
• C. They gain voting rights in corporate decisions
• D. They receive dividends from stock sales

Answer: (B)

When a person buys a company's bond, they essentially lend money to the company in exchange for periodic interest payments and the return of the bond's face value at maturity. Bonds are a form of debt financing, meaning that the bondholder is a creditor to the company rather than an owner. This financial instrument does not grant ownership stakes or influence over corporate decisions, which differentiates bondholders from shareholders. Therefore, the correct understanding is that purchasing a bond signifies a loan made to the company, outlining the terms of repayment and interest.

When a person buys a company's bond, they essentially lend money to the company in exchange for periodic interest payments and the return of the bond's face value at maturity. Bonds are a form of debt financing, meaning that the bondholder is a creditor to the company rather than an owner. This financial instrument does not grant ownership stakes or influence over corporate decisions, which differentiates bondholders from shareholders. Therefore, the correct understanding is that purchasing a bond signifies a loan made to the company, outlining the terms of repayment and interest.