What is the primary purpose of issuing a fixed or adjustable rate note in the context of investments in securities?

• A. To raise capital by borrowing funds from investors, with interest payments that are either fixed or vary with a benchmark rate.
• B. To provide ownership rights and voting privileges in the issuing company.
• C. To guarantee a return that is linked to the performance of the stock market index.
• D. To allow investors to purchase goods and services at a discount.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a fixed or adjustable rate note: These are debt instruments issued by companies or governments to raise capital. They involve borrowing funds from investors and paying interest either at a fixed rate or an adjustable rate tied to a benchmark (e.g., LIBOR or SOFR).
2. Analyze the primary purpose of issuing such notes: The main goal is to raise capital for operational needs, expansion, or other financial requirements. This is achieved by borrowing funds from investors who receive interest payments in return.
3. Evaluate the options provided in the question: The correct answer should align with the purpose of fixed or adjustable rate notes, which is to raise capital through borrowing, not to provide ownership rights, guarantee returns linked to stock market performance, or offer discounts on goods and services.
4. Clarify why the other options are incorrect: Ownership rights and voting privileges are associated with equity instruments like stocks, not debt instruments. Returns linked to stock market performance are characteristic of equity-linked securities, not fixed or adjustable rate notes. Discounts on goods and services are unrelated to the purpose of these notes.
5. Conclude that the correct answer is: 'To raise capital by borrowing funds from investors, with interest payments that are either fixed or vary with a benchmark rate.' This aligns with the fundamental purpose of issuing fixed or adjustable rate notes.