Which statement best describes how an investor makes money off debt securities?

• A. By earning interest payments from the issuer over time
• B. By selling the securities at a price lower than the purchase price
• C. By voting on corporate policies at shareholder meetings
• D. By receiving dividends declared by the company

Answer: (A)

Verified step by step guidance

1. Understand the nature of debt securities: Debt securities are financial instruments issued by entities (such as corporations or governments) to raise funds. They typically involve a promise to repay the principal amount along with periodic interest payments.
2. Identify the primary way investors earn money from debt securities: Investors in debt securities earn money primarily through interest payments, which are paid by the issuer over the life of the security. This is a contractual obligation of the issuer.
3. Eliminate incorrect options: Review the other choices provided in the question. Selling securities at a price lower than the purchase price results in a loss, not a gain. Voting on corporate policies and receiving dividends are associated with equity securities, not debt securities.
4. Focus on the correct answer: The correct statement is that investors make money off debt securities by earning interest payments from the issuer over time. This aligns with the fundamental purpose of debt securities.
5. Summarize the concept: Debt securities are designed to provide fixed income to investors through interest payments, making them a reliable investment for those seeking steady returns rather than equity-based benefits like dividends or voting rights.