Question

Bonds are considered to offer a guaranteed return, as they must be honored by law, but which is still a potential risk that investors face?
The issuer may not raise enough capital.
The issuer could refuse to pay dividends.
The issuer could go bankrupt.
The issuer may not make a profit.

Answer 1

Bonds are a type of investments that is categorized as a fixed-income instrument which symbolizes loans that investors make to a borrower. Bonds can be made by a corporation or a government. Bonds always have end dates, and they generally have lower risks compared to stocks.

However, there are still some risks associated with this type of instrument, which is (C) the issuer could go bankrupt.

Answer 2

The answer is: The issuer could go bankrupt.

When investors buy a bond, they basically enter an agreement where the bond issuer become indebted and agree to payback the amount of money they invested plus interest rates.

The thing is, the full value of bond can only fully paid back along with the interest after it reach maturity dates. If the issuer go bankrupt before the bond reaching its maturity, the issuer would be freed of all debts including the debts to the investors of the bond.