What characterizes a bearer bond?

What characterizes a bearer bond?

• A. A bond that is simple to transfer and redeem
• B. A bond that allows payment only to registered holders
• C. A bond that has interest payments related to inflation
• D. A bond that cannot be traded on the secondary market

Answer: (A)

A bearer bond is characterized by the fact that it is simple to transfer and redeem, which is reflected in the correct answer. The defining feature of bearer bonds is that they are issued without registries to identify the holder. This means that whoever physically possesses the bond has the right to receive the interest and principal payments. As such, they can easily be bought, sold, or transferred without the need for formal registration or documentation, making the process straightforward and efficient. While registered bonds require the issuer to keep track of who holds the bond and ensure that payments are made only to those registered holders, bearer bonds do not have such restrictions. This simplicity makes bearer bonds appealing for some investors, although it also involves a higher risk since they can be easily lost or stolen without a clear ownership record. The other options do not accurately describe the nature of bearer bonds, differentiating them from registered bonds, inflation-indexed bonds, or bonds with restrictions on secondary trading.

A bearer bond is characterized by the fact that it is simple to transfer and redeem, which is reflected in the correct answer. The defining feature of bearer bonds is that they are issued without registries to identify the holder. This means that whoever physically possesses the bond has the right to receive the interest and principal payments. As such, they can easily be bought, sold, or transferred without the need for formal registration or documentation, making the process straightforward and efficient.

While registered bonds require the issuer to keep track of who holds the bond and ensure that payments are made only to those registered holders, bearer bonds do not have such restrictions. This simplicity makes bearer bonds appealing for some investors, although it also involves a higher risk since they can be easily lost or stolen without a clear ownership record.

The other options do not accurately describe the nature of bearer bonds, differentiating them from registered bonds, inflation-indexed bonds, or bonds with restrictions on secondary trading.