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Debt security definition

Buyers of debt securities buy the obligation to be repaid principal plus interest. Buyers of equity securities buy the opportunity for growth. That's where the differences begin.
  1. Define - Define debt securities.
  2. Context - Use debt security in a sentence.
  3. Quiz - Test your knowledge.
by Paul Alan Davis, CFA, July 16, 2016
Updated: December 31, 2018
It is helpful to compare and contrast debt securities with equity securities. Keep reading to learn the distinctions between the two.

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Debt Security

Beginner

A Debt Security is an investment in the debt or leverage side of a business or government entity. In the event of a bankruptcy, debt securities are given higher priority than equity securities.

The owner of a debt security is interested in a fixed and stable return in the form of periodic interest payment. Typically debt securities mature and at that time the investor is returned a final principal payment.

Debt security prices are sensitive to prevailing interest rates and decrease in value when interest rates rise because alternative assets return a higher fixed payment. The opposite is true when interest rates fall.

Synonyms: bond, note, fixed-income

In a Sentence

Liz:  In this deck, must I define a debt security ? These days it's like, don't sue me.
Sue:  To the former, yes, and to the latter, huh?

Video

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Video Script

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Quiz

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Debt securities suffer capital losses when interest rates ____. | Fall or Rise?

Rise

Questions or Comments?

Still unclear on debt securities? Try out the course Quant 101.

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