A debt investment is a financial asset that represents a loan made by an investor to a borrower. The borrower is obligated to pay interest on the loan and repay the principal amount at a later date. Government bonds are a classic example of a debt investment. When an investor acquires a government bond, they are lending money to the government, which in turn promises to make periodic interest (coupon) payments and return the principal at the bond's maturity. This establishes a creditor-debtor relationship, which is the defining characteristic of a debt investment.

A. Investments in the capital stock of a corporation represent an ownership (equity) stake, not a loan.

C. An investment portfolio is a collection of different assets and not a specific type of investment itself.

D. Acquisition of common stock of a corporation is an equity investment that signifies ownership, not a debt claim.

1. Bodie

Z.

Kane

A.

& Marcus

A. J. (2018). Investments (11th ed.). McGraw-Hill Education. In Chapter 2

"Asset Classes and Financial Instruments

" Section 2.2

"The Bond Market

" explicitly describes government bonds as debt instruments issued by governments to borrow money. This contrasts with equity securities

discussed in Section 2.3

which represent ownership stakes.

2. International Accounting Standards Board (IASB). (2014). International Financial Reporting Standard 9: Financial Instruments. Paragraph 4.1.2(b) specifies the 'solely payments of principal and interest' (SPPI) criterion for classifying financial assets. Debt instruments like government bonds typically meet this criterion

as their contractual cash flows consist of principal and interest. Equity instruments (like stocks) do not have such contractual cash flows.

3. Ross

S. A.

Westerfield

R. W.

& Jordan

B. D. (2019). Fundamentals of Corporate Finance (12th ed.). McGraw-Hill Education. Chapter 7

"Interest Rates and Bond Valuation

" defines a bond as a debt security under which the issuer owes the holders a debt and is obliged to pay them interest (the coupon) and to repay the principal at a later date. Chapter 8

"Stock Valuation

" defines stock as representing ownership in a firm.