Question

Why might a town decide to issue bonds? A To help save money for their residents. B To build new roads or bridges. C Both A and B D Neither A nor B

Answer 1

The correct answer is C.

On the first hand, a bond is a financial instrument issued by a debtholder, who divides the amount of his debt in participations and sells them in the financial markets. Investors purchase these bonds, therefore the issuer receives the money he needs, but now acquires a debt with the investor who has paid for the bond, and has to pay back to him. Bonds can be issued by both public and private entities. Public debt is the general namegiven to the bonds issued by public powers.

When the town goverment needs funding it can use bonds to obtain it. The money received from investors can be used to finance the amount directed to a specific project (for example, build a new road) or to use it to benefit its residents in a more direct manner (for example, through welfare programs).

Answer 2

Both A and B.

Further Explanation:

The town decides to issue bonds to build highways, roads, and bridges. The bonds are issued to influx the money in the market. These resources are utilized and infrastructure is built up. These bonds are bought by private companies. Sometimes government also issue bonds and private companies buy them. Bond is a type of instrument of indebtedness. There are two types of bonds: municipal bonds and corporate bonds. The bond is a type of debt security which issuer owes to the holders of a debt and is obliged to pay the interest. Interest is paid at the fixed interval. Sometimes the bond is negotiable. Bonds and stocks are both securities. Bonds are issued by the public authorities. The process of issuing bonds is by underwriting. The government bonds are issued by auction.  The price is determined by the market. The bonds are sold directly to the buyers and are not tradable in the market. On the bond, the maturity date is mentioned. The coupon is that interest rate which the issuer pays to the holder. The yield is the return received after investing in the bond. The credit quality is a probability that the bondholders receive the money as promised.  

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Answer Details:

Grade: High School

Subject: Social Science

Chapter: Issue Bonds

Keywords: Debt security, fixed interval, negotiable, underwriting, auction, coupon, yield.