Respuesta :
The answer is A.
There is risk involved in owning a stock, and many unknown variables. The value of the stock could plummet, putting your principal investment at risk. There is no guarantee of return on investment, and even well-established companies have had to cut dividends during difficult times.
In the case of bonds, you are guaranteed by the bond issuer that your principal and the agreed-upon interest will be paid at a defined time. Excluding the event of bankruptcy (and still likely in this case), you are virtually guaranteed that the entity will pay you according to the agreed-upon terms. For this reason, bonds are considered a much lower risk investment.
Why then, do many people choose to invest at least part of their portfolio in stocks? Stocks generally have a much high expected return, and many people consider this increased return worth the increased risk that with it.
There is risk involved in owning a stock, and many unknown variables. The value of the stock could plummet, putting your principal investment at risk. There is no guarantee of return on investment, and even well-established companies have had to cut dividends during difficult times.
In the case of bonds, you are guaranteed by the bond issuer that your principal and the agreed-upon interest will be paid at a defined time. Excluding the event of bankruptcy (and still likely in this case), you are virtually guaranteed that the entity will pay you according to the agreed-upon terms. For this reason, bonds are considered a much lower risk investment.
Why then, do many people choose to invest at least part of their portfolio in stocks? Stocks generally have a much high expected return, and many people consider this increased return worth the increased risk that with it.
The correct option is (A).
A bond typically pays a fixed, predictable amount of interest each year.
Further Explanation:
Justification for the correct and incorrect answer:
A.)
A bond typically pays a fixed, predictable amount of interest each year:This option is correct.
A bond pays a fixed amount of interest each year, and the amount is predictable; also, the bondholders get the benefit of interest to be paid first if the company is in loss also.
B.)
Stocks are stable and do not change often:This option is incorrect.
Stocks are unstable, volatile in nature, and their value changes often. And their dividends are also unpredictable.
C.)
Bonds are issued by many different entities:This option is incorrect.
Bonds can be issued by many different entities or companies. But this option does not make any sense regarding the lower-risk investment of the bond than the stock.
D.)
Well-established company stocks pay dividends to their investors:This option is incorrect.
Well-established company stocks do not mean that they will pay dividends to their investors. The company might retain profits and can invest the amount in the future.
Learn More:
1. Stock and bonds
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3. Stock portfolio
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Answer Details:
Grade: High school
Chapter: Stocks and bonds
Subject: Business studies
Keywords: Why is a high-quality bond typically considered a lower-risk investment than stock, a bond typically pays a fixed, predictable amount of interest each year, stocks are stable and do not change often, bonds are issued by many different entities, well-established company stocks pay dividends to their investors.
