Answered

Why is a bond with a higher interest rate often considered a higher risk investment?

A. More secure bonds have higher interest rates.
B. A higher interest rate means a higher rate of return on the investment.
C. A higher interest rate would provide too much of a return on the investment.
D. Some companies promise higher interest rates in order to attract the attention of investors.

Please select the best answer from the choices provided:
A
B
C
D



Answer :

GinnyAnswer

Final answer:

Bonds with higher interest rates are seen as riskier investments due to potential defaults, interest rate fluctuations, and increased opportunity cost.


Explanation:

Bonds with a higher interest rate are often considered higher risk investments because:

  1. Bonds offering high interest rates may carry a higher chance of default, known as high-yield or junk bonds.
  2. When interest rates rise for the economy, owners of bonds issued at lower rates face a loss as they are locked into the lower rate.
  3. Higher interest rates increase the opportunity cost of using funds for investments, reducing overall investment.

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