Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What characteristic defines bearer bonds?

1. They require strict registration

2. They pay principal to the registered holder

3. They are unregistered and pay principal to the bearer

4. They can only be traded through authorized brokers

The correct answer is: They are unregistered and pay principal to the bearer

Bearer bonds are defined by their lack of registration, which means that ownership is not recorded in the books of the issuer. The defining characteristic of bearer bonds is that they pay principal and interest to whoever physically holds the bond. This means that whoever is in possession of the bond can claim the principal amount at maturity and is entitled to receive interest payments, making it a very straightforward transaction. The unregistered nature of these bonds allows for greater anonymity since the bondholder does not have to provide personal identification to claim the payments. This characteristic can also make them more susceptible to loss or theft, as possession is effectively ownership.