American Institute of Certified Planners (AICP) Practice Exam

What is a bond?

1. A type of equity investment

2. An interest-bearing certificate issued as a means to raise capital

3. A form of real estate marketing

4. A short-term loan for business purposes

The correct answer is: An interest-bearing certificate issued as a means to raise capital

A bond is correctly defined as an interest-bearing certificate issued as a means to raise capital. This financial instrument represents a loan made by an investor to a borrower, typically corporate or governmental. When an issuer sells a bond, it is promising to pay the bondholder periodic interest payments, known as coupon payments, and to return the principal, or face value, of the bond at its maturity date. This mechanism is an essential part of capital markets, allowing entities to acquire funds for various projects, operations, or expenditures while providing investors a relatively stable and predictable return. In contrast, equity investments pertain to ownership stakes in a company, which differentiate them from debt instruments like bonds. Real estate marketing involves promoting properties, not financial instruments. Short-term loans for business purposes, while they may provide capital, do not follow the structured format of a bond, which generally has longer terms and fixed interest payments. Thus, the characteristics and framework of bonds as debt securities make option B the most accurate description.