How do bonds generate income for investors?

Question

A. Bonds depreciate in value.
B. Bonds protect investors from bankruptcy.
C. Bonds pay interest to the bank that sold the bond.
D. Bonds pay a specified amount to the investor at maturity.

Answer 1

Bonds generate income for investors primarily through interest payments. The correct answer is:

D. Bonds pay a specified amount to the investor at maturity.

In addition to the maturity payment, bonds also typically pay periodic interest (called coupon payments) to the bondholder throughout the life of the bond. These interest payments are how investors earn income from holding bonds.