Question

Your Uncle Mike is approaching retirement and he asks for your advice for a safe place to invest several thousand dollars. He wants to receive some kind of payment each year for investing his money without a great deal of risk. You explaina.Yankee bonds are certain not to default.b.common stock always pays quarterly dividends.c.junk bonds do not pay annual interest.d.treasury and top-grade corporate bonds pay interest two times each year.

Answer 1

Answer:

d. treasury and top-grade corporate bonds pay interest two times each year

Explanation:

Treasury bonds represent the best solution for investing, having in mind the low-risk aspect and the fact that they are issued by the government. Treasury and top-grade corporate bonds always pay semiannual interests.

Junk bonds should not be even considered in risk-free options, as a junk bond is a bond issued by a struggling company, which may happen not to pay any interest sometimes.

Common stock does not necessarily have to pay quarterly dividends, as some companies pay dividends monthly, or even annually. Also, the risk is still lower in treasury bonds, as common stock becomes questionable in the case of company liquidation. If and when that happens, common stockholders gain rights to company assets only after bondholders and preferred shareholders become paid.

The default risk is present in all bonds, including Yankee bonds, which are issued by foreign companies in the USA.