Final answer:
An interest-bearing note payable issued by corporations is known as a corporate bond. These bonds offer higher interest rates than government bonds to compensate for the higher risk of default that corporations carry compared to the government.
Step-by-step explanation:
The form of interest-bearing note payable issued by corporations, universities, and governmental agencies is known as a bond. Specifically, corporations issue what are called corporate bonds. These are ways for corporations to raise funds from investors who lend money to the company in exchange for periodic interest payments and the return of the bond's face value at maturity. Corporate bonds often offer a higher rate of interest than government treasuries because of the greater risk of default; corporations are inherently riskier borrowers than stable governments.
For instance, firms with a solid credit rating, like those with an AAA rating from Moody's, will still offer higher interest rates on their bonds than U.S. Treasury bonds, which are considered one of the safest investments. Even so, both corporate and Treasury bond yields fluctuate in tandem due to changing market conditions affecting lenders and borrowers. Compared to a checking account, which typically pays little or no interest, both types of bonds typically provide a better return, with corporate bonds generally offering the highest yields to compensate for their increased risk.