4.5k views
2 votes
What's the deal with investing in bonds (fixed income securities)?

User Tetotechy
by
9.2k points

1 Answer

4 votes

Final answer:

Bonds are somewhat risky to buy due to varying rates of return and the potential for losses if interest rates rise after purchase.

Step-by-step explanation:

A bond is a fixed income security that promises the investor a series of payments based on a fixed rate of interest. However, bonds are somewhat risky to buy due to several factors.

First, the riskiness of the borrower affects the rate of return that a bond offers. Bonds issued by borrowers with a higher chance of defaulting on payments, known as high-yield or junk bonds, offer higher rates of return but are also riskier.

Second, if interest rates rise for the economy as a whole after an investor has purchased a fixed-rate bond, they are locked into receiving lower interest payments than the current market rate. This can result in a loss for the investor.

User Soichi Hayashi
by
8.4k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.