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3 years ago

Why is a high-quality bond typically considered a lower-risk investment than a stock?

2 answers:

7 0

The answer is A.
There is risk involved in owning a stock, and many unknown variables. The value of the stock could plummet, putting your principal investment at risk. There is no guarantee of return on investment, and even well-established companies have had to cut dividends during difficult times.

In the case of bonds, you are guaranteed by the bond issuer that your principal and the agreed-upon interest will be paid at a defined time. Excluding the event of bankruptcy (and still likely in this case), you are virtually guaranteed that the entity will pay you according to the agreed-upon terms. For this reason, bonds are considered a much lower risk investment.

Why then, do many people choose to invest at least part of their portfolio in stocks? Stocks generally have a much high expected return, and many people consider this increased return worth the increased risk that with it.

andriy [413]3 years ago

7 0

The correct option is (A).

A bond typically pays a fixed, predictable amount of interest each year.

Further Explanation:

Justification for the correct and incorrect answer:

A.)

A bond typically pays a fixed, predictable amount of interest each year:This option is correct.

A bond pays a fixed amount of interest each year, and the amount is predictable; also, the bondholders get the benefit of interest to be paid first if the company is in loss also.

B.)

Stocks are stable and do not change often:This option is incorrect.

Stocks are unstable, volatile in nature, and their value changes often. And their dividends are also unpredictable.

C.)

Bonds are issued by many different entities:This option is incorrect.

Bonds can be issued by many different entities or companies. But this option does not make any sense regarding the lower-risk investment of the bond than the stock.

D.)

Well-established company stocks pay dividends to their investors:This option is incorrect.

Well-established company stocks do not mean that they will pay dividends to their investors. The company might retain profits and can invest the amount in the future.

Learn More:

1. Stock and bonds

brainly.com/question/1330190

2. Stock price

brainly.com/question/11192535

3. Stock portfolio

brainly.com/question/5728646

Answer Details:

Grade: High school

Chapter: Stocks and bonds

Subject: Business studies

Keywords: Why is a high-quality bond typically considered a lower-risk investment than stock, a bond typically pays a fixed, predictable amount of interest each year, stocks are stable and do not change often, bonds are issued by many different entities, well-established company stocks pay dividends to their investors.

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Why might you complete a 1040 instead of a 1040ez? everfi?

Wittaler [7]

In general, if you have more types of deductions on your tax, the 1040 forms maybe more appropriate for you because it provide you with various options to claim deductions or credit.
The 1040Ez on the other hand only offer a simple format that only beneficial for taxpayers who made certain conditions.

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3 years ago

Read 2 more answers

The typical family on the Planet Econ consumes 10 pizzas, 7 pairs of jeans, and 20 gallons of milk. In 2016, pizzas cost $10 eac

jasenka [17]

Answer:

increase in cost of living of 9.09%

Explanation:

The cost of living for 2016 is goven as

(10 pizzas*$10) + (7 jeans * $40)+ (20 gallons of milk * $3)

= 100 + 280 + 60= $440

The cost of living from 2017 is

(10 pizzas*$14) + (7 jeans * $40)+ (20 gallons of milk * $3)

= 140 + 280 + 60

= $480

The percentage increase in cost of living between 2016 and 2017= (Cost of living in 2017/cost of living in 2016)* 100

= {480/440}* 100

= 109.09%

So there was a increase in cost of living of 9.09%

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3 years ago

A form of foreign direct investment, where a domestic company purchases a company in a foreign country to produce a similar prod

Sergio [31]

Answer:

c. foreign subsidiary

Explanation:

Foreign subsidiary -

It refers to a company which is partially or completely , part of some large firm , whose main office is located in some other country , is referred to as a foreign subsidiary .

It is a form of foreign direct investment method , where a company purchases any other company , where the company supposed to manufacture , sell or produce the same type of goods and services .

Hence, from the given information of the question,

The correct option is c. foreign subsidiary .

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3 years ago

An analysis of stockholders' equity of Hahn Corporation as of January 1, 2010, is as follows:

charle [14.2K]

Answer:

Additional paid-in capital is $904,200

Explanation:

Number of shares, issued and outstanding = 93,000 shares

Acquired 2,460 shares of its stock for $75,000.

Sold 2,000 treasury shares at $35 per share.

Sold the remaining 460 treasury shares at $20 per share.

i) Acquired 2,460 shares of its stock for $75,000.

= Treasury Stock Dr $75,000

ii) Sold 2,000 treasury shares at $35 per share.

Treasury Stock (2,000 × $35) = Dr $70,000

iii) Sold the remaining treasury shares at $20 per share.

Treasury Stock (460 × $20) = Dr $9,200

Total Treasury Stock = $75,000 - $70,000 - $9,200

= ($4,200)

Paid in Cap-tresury stock= 10,000-5000=5000

Additional Paid in capital = Paid in Capital - treasury stock

= 900,000 + 4,200 = $904,200

6 0

3 years ago

Both Bond Sam and Bond Dave have 7.3 percent coupons, make semiannual payments, and are priced at par value. Bond Sam has three

Zarrin [17]

Answer:

Sam change: -5.13%

Dave change -18.01%

Explanation:

If interest rate increase by 2%

then the YTM of the bond will be 9.3%

We need eto calcualte the present value of the coupon and maturity of the bond at this new rate:

For the coupon payment we use the formula for ordinary annuity

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

Coupon payment: 1,000 x 7.3% / 2 payment per year: 36.50

time 6 (3 years x 2 payment per year)

YTM seiannual: 0.0465 (9.3% annual /2 = 4.65% semiannual)

$36.5 \times \frac{1-(1+0.0465)^{-6} }{0.0465} = PV\\$

PV $187.3546

For the maturity we calculate usign the lump sum formula:

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity: $ 1,000.00

time: 6 payment

rate: 0.0465

$\frac{1000}{(1 + 0.0465)^{6} } = PV$

PV 761.32

Now, we add both together:

PV coupon $187.3546 + PV maturity $761.3154 = $948.6700

now we calcualte the change in percentage:

948.67/1,000 - 1 = -0.051330026 = -5.13

For Dave we do the same:

$C \times \frac{1-(1+r)^{-time} }{rate} = PV\\$

C 36.50

time 40

rate 0.0465

$36.5 \times \frac{1-(1+0.0465)^{-40} }{0.0465} = PV\\$

PV $657.5166

$\frac{Maturity}{(1 + rate)^{time} } = PV$

Maturity 1,000.00

time 40.00

rate 0.0465

$\frac{1000}{(1 + 0.0465)^{40} } = PV$

PV 162.34

PV c $657.5166

PV m $162.3419

Total $819.8585

Change:

819.86 / 1,000 - 1 = -0.180141521 = -18.01%

6 0

3 years ago