Which of the following is not a characteristic of bonds?

General
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which of the following is not a characteristic of bonds?

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Which of the following is not a characteristic of bonds?

Answer:

To determine which characteristic is not associated with bonds, it’s essential to first understand the fundamental characteristics that define bonds. Bonds are debt securities issued by entities such as corporations, municipalities, or governments. They serve as a way for these entities to raise capital by borrowing money from investors. Here are some primary characteristics of bonds:

Key Characteristics of Bonds:

  1. Fixed Interest Payments:

    • Bonds usually pay a fixed amount of interest, known as the coupon, periodically (e.g., annually or semi-annually).

  2. Maturity Date:

    • Every bond has a specified maturity date, which is the date when the principal amount (the face value) is to be returned to the bondholder.

  3. Principal Amount:

    • This is the amount of money a bondholder will receive back when the bond matures. It is also referred to as the face value or par value of the bond.

  4. Credit Rating:

    • Bonds are given ratings by credit rating agencies which indicate the creditworthiness of the issuer and the risk of default.

  5. Convertible Feature (for Some Bonds):

    • Some bonds have a convertible feature that allows the bondholder to convert the bond into a predetermined number of the issuer’s shares.

  6. Call Feature (for Callable Bonds):

    • Some bonds can be called or redeemed by the issuer before the maturity date, usually at a premium over the par value.

Characteristics Not Commonly Associated with Bonds:

A characteristic that typically does not apply to bonds but is more associated with stocks or other types of securities includes:

  • Ownership in the Issuing Entity:

    • Buying a bond does not provide the bondholder with ownership or equity interest in the issuing entity. This is a characteristic of stocks, where shareholders own a portion of the issuing company.

  • Voting Rights:

    • Bondholders do not have voting rights in the issuing corporation, which is a feature associated with shareholders.

  • Dividends:

    • Dividends are associated with common or preferred stocks, not bonds. Bonds pay interest, not dividends.

Conclusion:

The characteristic that is not associated with bonds is “ownership in the issuing entity.” Bondholders are lenders to the issuer and do not own part of the entity as shareholders do.