Certificates of Participation (COPs) represent what type of financial instrument?

Certificates of Participation (COPs) are unique financial instruments that allow investors to participate in a stream of revenues, typically generated from lease agreements or specific projects funded by the issuance of the COPs. When an entity, such as a municipality, issues COPs, it is essentially providing a means for the investors to buy into a fraction of the lease payments or pledged revenues associated with a particular asset.

The correct choice emphasizes that COPs provide a pro rata share in a specific revenue stream, which is accurate because investors receive a portion of the revenues that are pledged to repay the underlying lease obligations associated with the financed asset. This structure makes COPs a compelling option for fund-raising, as they can be used to finance infrastructure without requiring a full bond issuance.

In contrast, options that describe COPs as equity investments or standard debt securities do not capture the unique nature of COPs, which combine elements of both debt and equity but are primarily tied to specific revenue streams tied to lease agreements. Therefore, focusing on the pro rata share aspect highlights the essential characteristic that defines the nature of Certificates of Participation.