Debt instruments obligate an issuer to make interest payments and repay principal to the buyer according to the terms of an agreement between the lender and the borrower. The yield, or market price of these debt securities is related to the yield on U.S. Treasury securities. Treasuries remain the benchmark for risk-free credit investing, and other yields are related to the risk-free return Treasuries offer. Also known as bonds, debt instruments are attractive to investors because they can provide a reliable stream of cash flows in the form of interest payments and also might provide for the repayment of principal upon maturity. This chapter discusses the features of bonds, types of bonds, bond-rating agencies, special types of debt instruments, and the Securities Act.
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