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QA › Economics › Why is a high-quality bond typically considered a lower-risk investment than a stock?

Why is a high-quality bond typically considered a lower-risk investment than a stock?

A. Stocks are stable and do not change often.

B. A bond typically pays a fixed, predictable amount of interest each year.

C. Bonds are issued by many different entities.

D. Well-established company stocks pay dividends to their investors.

Answer: B. A bond typically pays a fixed, predictable amount of interest each year.

A high-end quality bond is regarded as a lower-risk investment than a stock because a typical bond pays a predictable, fixed amount of interest per annum. This happens as a result of the less risky prices of bonds when compared to stock prices. As an added reason, a bond is a short-term investment with payments made very early in the first year. Generally, stocks are considered risky because of the high possibility of loss of capital. This is not so in high-quality stocks as investors are guaranteed their returns regardless of what happens.

Economics

2 years ago

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