Which financial instrument represents a debt owed by a company? (2024)

Which financial instrument represents a debt owed by a company?

Bonds and debentures are among the most popular types of fixed-income debt instruments.

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What financial instrument is a debt instrument?

Debt instruments are any form of debt used to raise capital for businesses and governments. There are many types of debt instruments, but the most common are credit products, bonds, or loans. Each comes with different repayment conditions, generally described in a contract.

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What financial instrument represents corporate debt?

Bonds are the most common debt instrument. Bonds are created through a contract known as a bond indenture. They are fixed-income securities that are contractually obligated to provide a series of interest payments of a fixed amount and also repayment of the principal amount at maturity.

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What is the name of debt instrument?

Debt instruments include debentures, bonds, certificates, leases, promissory notes and bills of exchange. These allow market players to shift debt liability ownership from one entity to another. Throughout the instrument's life, the lender receives a specific amount as a form of interest.

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What is a debt instrument where a company owes you money?

A bond is a debt obligation, like an Iou. Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures.

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What are the types of debt instruments?

Table Comparing Different Debt Instruments
Government BondsThey are issued for a fixed term and can be redeemed only on maturity.
Debt-Mutual FundsOpen-ended debt mutual funds are liquid.
Certificate of DepositCDs can be redeemed only after maturity, so they have limited liquidity.
3 more rows
Sep 18, 2023

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What is a debt or equity instrument?

Equity-based financial instruments represent ownership of an asset. Debt-based financial instruments represent a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of financial instrument.

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What are the 3 main categories of financial instruments?

There are typically three types of financial instruments: cash instruments, derivative instruments, and foreign exchange instruments.

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Is cash a debt instrument?

Cash is the definition of liquid and inherently provides no return - you could earn interest on cash by depositing it in a bank but then you are creating a debt obligation in effect - the cash inherently, as in cash in a physical safe, generates zero return nominal by definition.

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What is considered corporate debt?

Corporate Debt refers to the amount of money that a company borrows from different sources to finance its operations and growth. Such funds could come from issuing bonds, bank loans, or commercial papers, for instance.

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Is a debt instrument a loan?

Debt instruments include short-term instruments-debt tools used for daily financial requirements repaid within five years, while long-term instruments are used for bigger investments such as a company's future planning with a repayment period of above 5years. Debt instruments include bank borrowing/loans.

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What are examples of debt and equity instruments?

Examples of debt instruments include bonds (government or corporate) and mortgages. The equity market (often referred to as the stock market) is the market for trading equity instruments. Stocks are securities that are a claim on the earnings and assets of a corporation (Mishkin 1998).

Which financial instrument represents a debt owed by a company? (2024)
What is an example of a debt?

Debt is anything owed by one party to another. Examples of debt include amounts owed on credit cards, car loans, and mortgages.

What is debt owed by a business called?

Liabilities are the debts your business owes. Expenses include the costs you incur to generate revenue. For example, the cost of the materials you use to make goods is an expense, not a liability. Expenses are directly related to revenue.

What is the safest debt instrument?

Overnight Fund is the safest among debt funds. These funds invest in securities that are maturing in 1-day, so they don't have any credit or interest risk and the risk of making a loss in them is near zero.

How are debt instruments valued?

Conceptually, the nominal value of a debt instrument can also be calculated by discounting future interest and principal payments at the existing contractual19 interest rate(s)20 on the instrument; these interest rates may be fixed rate or variable rate.

What are some examples of financial instruments?

Long-term financial instruments include bonds, mortgages, and certain types of loans, while short-term financial instruments include treasury bills, commercial paper, and short-term loans.

What is a major difference between a debt and an equity financial instrument?

Debt financing involves the borrowing of money whereas equity financing involves selling a portion of equity in the company. The main advantage of equity financing is that there is no obligation to repay the money acquired through it.

What are the characteristics of debt instruments?

Debt securities are negotiable financial instruments, meaning they can be bought or sold between parties in the market. They come with a defined issue date, maturity date, coupon rate, and face value. Debt securities provide regular payments of interest and guaranteed repayment of principal.

What is the most common financial instrument?

The two most prominent financial instruments are equities and bonds. Equities (or shares) are the ownership of a portion of a company, which can then be traded. The value of this portion may fluctuate depending on the company's performance and market conditions, making equities a potentially risky investment.

What are the two basic types of financial instruments?

Stocks and bonds are two types of financial instruments. Companies can raise capital by issuing bonds or stocks. A stock is a debt instrument issued by corporations. A Treasury bond is a debt instrument issued by corporations.

What is the most basic financial instrument?

Cash is the most basic financial instrument because it is the medium of exchange and is the basis on which all transactions are measured and recognized in the financial statements.

Which of the following instruments is not a debt instrument?

Answer and Explanation: The correct answer to the given question is option D. Stocks.

Which of the following are not examples of debt instruments?

Debt instruments are the assets that require a fixed payment with interest to the holder. Its examples include mortgages and bonds (corporate or government). Stocks cannot be called a Debt instrument.

Are debt instruments risky?

Lastly, the risk profile differs: debt instruments are generally considered safer as they offer fixed returns and have a higher claim on assets during liquidation, unlike equities.

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