ACCA Financial Management (F9) Certification Practice Exam

What type of instruments is categorized as interest-bearing instruments?

1. Real estate investments

2. Equities and corporate bonds

3. Bonds, loans, and savings accounts

4. Stocks and derivatives

The correct answer is: Bonds, loans, and savings accounts

Interest-bearing instruments are financial products that provide returns in the form of interest payments to investors. The correct answer identifies bonds, loans, and savings accounts as such instruments because they involve an agreement where the borrower pays the lender interest over a certain period. Bonds are essentially IOUs issued by governments or corporations, which pay periodic interest until maturity when the principal is repaid. Loans, whether personal or business-related, typically involve a borrower receiving a sum of money that is then paid back with interest over a set schedule. Savings accounts, offered by banks, accumulate interest on the deposited funds, providing a reliable return to the account holder. In contrast, real estate investments, while they can produce income, do not inherently offer interest; rather, they rely on capital appreciation or rental income. Equities represent ownership in a company and may provide dividends, which are not considered interest but rather a share of company profits. Stocks and derivatives also do not derive their returns from interest, but instead can offer capital gains or losses based on price movements. Thus, bonds, loans, and savings accounts distinctly fit the definition of interest-bearing instruments.