Final answer:
An investment paying a fixed amount annually is a bond. Stocks have higher average returns over time, but more risk, while high-risk investments do not necessarily mean low returns. Simple interest can be calculated using the principal, rate, and time. Option 2
Step-by-step explanation:
An investment that pays the investors $1,000 per year for the next 10 years is an example of a(n) bond. Bonds provide fixed periodic payments to the investor and return the principal at maturity, resembling the scenario described.
Investment Returns and Risks
Stocks generally have a higher average return over time compared to bonds and savings accounts. However, with the potential for higher returns comes increased volatility and risk. In contrast, the value of a savings account tends to change very little over time, but it also offers lower returns. Bonds tend to fall in the middle, offering more stability than stocks but typically lower returns compared to stocks.
It is not necessarily true that high-risk investments will have low returns. Risk implies a wider range of outcomes, which can include both high and low returns. Investors expect a higher return on average for taking on more risk. Otherwise, there would be little incentive to invest in high-risk opportunities.
Calculating Simple Interest
The total amount of simple interest from a $5,000 loan after three years with a simple interest rate of 6% is calculated as follows: $5,000 × 0.06 × 3 = $900.
If you receive $500 in simple interest on a loan of $10,000 for five years, the interest rate charged is found by dividing the total interest by the product of the principal and the number of years. Thus, $500 / ($10,000 × 5) equals an interest rate of 1%. Option 2