Question

The indenture creates a contractual relationship between the ________.

1) issuer and its counsel
2) trustee and its counsel
3) issuer and the security holders
4) security holders and their brokers

Answer 1

The indenture creates a contractual relationship between the issuer of bonds and the security holders, or bondholders.

Step-by-step explanation:

The indenture is a legal and binding contract that establishes a contractual relationship between the issuer of bonds and the security holders. This formal agreement outlines the terms of the bond, such as the interest rate, payment schedule, and what happens if the issuer fails to make the payments. It serves as a protective measure for the security holders, commonly referred to as bondholders, who are effectively lending money to the issuer, often a corporation or government entity. The correct answer to the student's question is thus: 3) issuer and the security holders.