Which instrument is a long-term debt instrument that pays a fixed interest and matures on a specified date?

• A. Note
• B. Bond
• C. Debenture
• D. Stock

Answer: (B)

Think in terms of a long-term debt security that provides a fixed stream of interest over time and has a defined date when the principal is repaid. That description is the hallmark of bonds, which are issued by corporations or governments to raise funds and come with regular coupon payments and a set maturity. A note is similar in being debt with fixed interest, but notes are typically shorter-term, so they don’t fit the “long-term” aspect as well. A debenture is also a long-term debt instrument, usually unsecured, but the most common, general-purpose term for the fixed-interest, maturity-defined instrument is bond. Stock is not debt at all and does not pay fixed interest or mature.