Debt securities are characterized by which of the following?

Debt securities are instruments that represent a loan made by an investor to a borrower, typically a corporation or government. The defining characteristic of debt securities is that they involve an obligation: the issuer of the security is obligated to pay back the principal amount borrowed, along with interest, to the holder of the debt security at specified intervals and upon maturity.

This obligation creates a clear distinction between debt securities and other types of financial instruments. For example, ownership in a company is related to equity securities like stocks, where shareholders hold a claim on the company’s assets and earnings. Payments made to shareholders refer to dividends, which are not applicable to debt securities, as they do not confer ownership. Cash reserves kept by banks pertain more to liquidity and banking regulations rather than the characteristics of debt securities.

Thus, the correct answer highlights the essential nature of debt securities as an amount owed by the issuer to the holder, emphasizing their role as a financial commitment that entails repayment responsibilities from the issuer.