Question

4 which of the following is an advantage of a bond over a stock?
riskier but provides a higher rate of return
riskier but provides a guaranteed rate of return
less risky and provides a lower rate of return
less risky and provides a guaranteed rate of return

Explanation:

Analyze the characteristics of stocks and bonds

Bonds represent debt obligations, meaning the issuer promises to pay back the principal with a fixed, guaranteed interest rate. Stocks represent equity ownership, which carries higher risk because returns depend entirely on market performance and are not guaranteed.

Compare risk and return profiles

Bonds are generally less risky than stocks because bondholders have a higher claim on assets in the event of bankruptcy and receive fixed interest payments. Therefore, an advantage of a bond over a stock is that it is less risky and provides a guaranteed rate of return.

Evaluate the given options

The fourth option correctly identifies that bonds are less risky and provide a guaranteed rate of return compared to stocks.

Answer:

• Riskier but provides a higher rate of return
• Riskier but provides a guaranteed rate of return
• Less risky and provides a lower rate of return
• Less risky and provides a guaranteed rate of return (Correct answer)