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.
Answer (1)
A higher interest rate on a bond generally indicates a higher risk because borrowers often offer increased rates to attract investors amid higher perceived risk. This is particularly evident in bonds from financially unstable companies or those with lower credit ratings. Therefore, option D is the correct answer as higher rates compensate for higher risk factors. ;
