Which of the following best describes bonds?

A bond is best described as a debt instrument issued by an organization. When an organization needs to raise capital, it can issue bonds to investors, effectively borrowing money that must be repaid with interest over time. Investors who buy bonds are lending money to the issuer, which could be a corporation, government, or municipality, and in return, they receive periodic interest payments until the bond matures. At maturity, the issuer repays the principal amount of the bond.

This definition emphasizes the characteristics of bonds as fixed-income securities where the bondholders do not have ownership in the organization but rather are creditors seeking returns through interest payments. Other options present different financial instruments or concepts. For example, the notion of an ownership stake refers to equity instruments like stocks, which provide a claim on the organization's assets and earnings; thus, it does not apply to bonds, which represent a creditor relationship rather than ownership. Recognizing these distinctions is crucial for understanding how bonds function within the financial landscape.