Final answer:
The true statement is 1) Interest on bonds is tax deductible, meaning companies can deduct interest payments on bonds from their taxable income. Bonds must be repaid at maturity, and dividends to stockholders are not tax deductible. The rate of return on bonds varies based on riskiness and market conditions.
Step-by-step explanation:
The correct statement among the options provided is 1) Interest on bonds is tax deductible. This means that for a company that issues bonds, the interest it pays to bondholders can be deducted from its taxable income. Bonds represent a debt obligation, and the company is required to repay the principal amount at a specified maturity date. While the interest payments are tax deductible for the issuer, dividends paid to shareholders are not. Therefore, statement 3) Dividends to stockholders are tax deductible is incorrect.
Statement 2) Bonds do not have to be repaid is also incorrect. Bonds are a form of debt financing, and as such, the issuer of the bonds is obligated to repay the face value of the bonds when they mature. Similarly, statement 5) Bonds always decrease return on equity is not necessarily true, as this can vary depending on multiple financial factors within a company.
It should be noted that bonds can have different rates of return based on factors such as credit risk, market interest rates, and the inflation rate. These are important components investors consider when choosing to purchase bonds.