Final answer:
An unsecured corporate bond of good quality provides fixed income with average to low risk, as the issuer is likely to honor its payment obligations. They are less risky than high-yield bonds and bondholders have recourse in case of defaults.
Step-by-step explanation:
An unsecured corporate bond of good quality, also known as investment grade, provides fixed income with average to low risk. This is because the issuer, typically a large corporation, has a strong likelihood of making the promised payments over time. The risk is lower compared to bonds of lower quality (high-yield or junk bonds). Despite not having collateral backing the loan, the investment grade indicates a lower probability of default.
Bondholders have measures available if a corporation fails to make payments; they can push the company into bankruptcy to recover as much of their investment as possible. To mitigate risks further, investors can diversify their bond holdings across various issuers. The rate of return on these bonds can be considered low to moderate, directly correlating with the borrower's risk and the interest rate environment at the time of issuance.