A loan obligation where the issuer is borrowing funds that must be repaid with interest to the investor is what?

• A. Bonds
• B. Stocks
• C. Mutual Funds
• D. Annuities

Answer: (A)

Debt securities describe a loan arrangement where a borrower raises funds by issuing an obligation to repay the principal plus interest to the lenders. In this case, the issuer borrows money from investors and agrees to make periodic interest payments and to return the principal at maturity. That creditor–debtor relationship is what defines a bond.

Stocks, by contrast, represent ownership in a company rather than a loan that must be repaid with interest. Mutual funds are pools of investors’ money used to buy a diversified portfolio of assets, not a direct loan from investors to a borrower. Annuities are insurance products that provide a stream of payments to the owner, not a loan obligation outstanding to investors.