Which of the following describes bonds?

Bonds are financial instruments that represent a loan made by an investor to a borrower, typically corporate or governmental. When someone purchases a bond, they are effectively lending money to the issuer in exchange for periodic interest payments and the return of the bond's face value when it matures. The correct choice describes bonds as certificates of debt because they establish a legal obligation for the issuer to pay back the borrowed funds, along with interest, over a specified period.

Understanding the nature of bonds as debt instruments is crucial in differentiating them from other types of financial securities, such as stocks or equity financing, where ownership in a company is acquired. Bonds provide a fixed income stream to investors, which contrasts with stocks that can vary in value and do not guarantee dividends. The description also aligns with common financial principles regarding how bonds function within both personal finance and corporate financial strategies.