Final answer:
A debt instrument that pays principal and interest on a monthly basis is not typically a bond as they often pay interest semi-annually. A Certificate of Deposit does pay monthly and is the correct answer.
Step-by-step explanation:
A debt instrument that pays principal and interest on a monthly basis is typically a type of bond or a loan. However, none of the bond options provided in the question (Corporate bond, Municipal bond, Treasury bond) typically pay back principal monthly. They usually pay interest semi-annually and return the principal at maturity. The only option listed that traditionally offers monthly payments of both principal and interest is a Certificate of Deposit (CD). Therefore, the correct answer is 4) Certificate of deposit.
A debt instrument that pays principal and interest on a monthly basis is a Certificate of deposit (CD).
A CD is a time deposit offered by banks and other financial institutions. When you purchase a CD, you lend money to the issuing institution for a fixed period of time, and in return, the institution pays you interest.
In addition to paying interest on a monthly basis, some CDs also allow you to withdraw your principal before the maturity date, although there may be penalties for early withdrawal.