ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Provide relatively high potential returns
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Are securities which are not founded on debt
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Creates ownership of a corporation
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Lends out money to a company or goverment
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Detailed explanation-1: -Unlike stocks, bonds do not offer ownership participation in a company through a return of profits or voting rights. Instead, they represent the issuer’s loan obligations and the likelihood of repayment, and other factors influence their pricing.
Detailed explanation-2: -Corporate bonds are typically seen as somewhat riskier than U.S. government bonds, so they usually have higher interest rates to compensate for this additional risk. The highest quality (and safest, lower yielding) bonds are commonly referred to as “Triple-A” bonds, while the least creditworthy are termed “junk".
Detailed explanation-3: -A bond is a debt obligation, like an Iou. Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures.
Detailed explanation-4: -Some of the characteristics of bonds include their maturity, their coupon (interest) rate, their tax status, and their callability. Several types of risks associated with bonds include interest rate risk, credit/default risk, and prepayment risk. Most bonds come with ratings that describe their investment grade.