Which of the following best describes corporate bonds?

• A. Long-term bonds issued by corporations
• B. Short-term bonds issued by governments
• C. Bonds issued by mutual funds
• D. Bonds that are always callable

Answer: (A)

Corporate bonds are debt securities issued by companies to borrow money for longer horizons. Investors lend funds to the company and receive periodic interest payments and the return of principal at maturity. Because they are issued by corporations for longer-term funding, the most accurate description is long-term bonds issued by corporations. Government bonds are issued by governments, not corporations, so that option wouldn’t describe corporate bonds. Bonds issued by mutual funds aren’t corporate debt at all—they’re securities issued by the fund, which is an investment vehicle, not the borrower. And while some corporate bonds can be callable, not all are, so describing them as always callable would be incorrect.