Question

Which of the following statements is false with respect to bonds? a. Firms issue bonds in very large single issues. b. The denomination of the bond is usually referred to as the face value. c. Bonds that are not backed by specific collateral of the issuing company are known as debenture bonds. d. Bonds must be held until maturity by the initial investor.

Answer 1

Answer:  d. Bonds must be held until maturity by the initial investor.

Explanation: A bond is defined as a documentary obligation to pay a sum or to perform a contract; in other words a debenture, which is a type of debt instrument secured only by the general credit of promise to pay of the issuer, not involving physical assets or collateral, now commonly issued by governments, large, well established corporations with adequate credit ratings. Now while bonds are issued by firms in large single issues, the denomination of bonds are usually referred to as face value, bonds sometimes are not held to maturity as they can be sold basing on current interest rates and situational preferences at the capital market. Thus, option D is false with respect to bonds.