Final answer:
The formal documentation creating bond indebtedness is referred to as the indenture, outlining the terms of the bond including the borrowed amount, interest rate, and repayment timeline. This is similar to a bank loan in terms of borrowing money and having to pay interest; however, the significant distinction is in the number of entities to be persuaded to avail the funds.
Step-by-step explanation:
True, the formal documentation creating bond indebtedness is indeed called the indenture. When a bond is issued, it establishes a financial contract between the borrower and the lender. In this contract, the amount to be borrowed, interest rate, and timeline for repayment are all specified. Whether it's a firm issuing corporate bonds, a city floating municipal bonds, or the U.S. Department of the Treasury disbursing Treasury bonds, the set terms of the bond are outlined in the indenture. This contract attests to a bond's similarity to a bank loan, as both involve borrowing money and paying interest, with the key difference largely being the avenue of securing funds and the number of entities involved in the lending process.
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