Final answer:
The statement is true; bonds are a form of interest-bearing notes payable, paying interest over time until the principal amount is repaid at maturity.
Step-by-step explanation:
Bonds are indeed a form of interest-bearing notes payable. This is true because when a bond is issued, the issuer owes the bondholders a debt and is obligated to pay them interest, known as the coupon, and to repay the principal, which is the amount borrowed, at a later date specified as the maturity date. For example, a company might issue bonds with a 5% coupon rate when interest rates in the market are at 5%. Therefore, a $1,000 par value bond would generate $50 in annual interest to the bondholder. However, if market interest rates change, the attractiveness of these bonds to investors may increase or decrease depending on whether the market rates rise above or fall below the bond's coupon rate. Corporate bonds, for instance, typically offer a higher interest rate compared to Treasury bonds due to the increased risk associated with corporate borrowers. As reference, Figure 17.5 illustrates how bond yields for highly-rated corporate bonds and 10-year Treasury bonds tend to fluctuate together even though they offer different interest rates.