Question

Why is a bond with a higher interest rate often considered a higher risk investment?
a.
More secure bonds have higher interest rates.
b.
A higher interest rate means a higher rate of return on the investment.
c.
A higher interest rate would provide too much of a return on the investment.
d.
Some companies promise higher interest rates in order to attract the attention of investors.

Answer 1

d. Some companies promise higher interest rates in order to attract the attention of investors.

Explanation: Riskier issuers must offer higher yields to compensate investors for the greater chance of default or other problems, so higher interest rates usually signal higher credit risk.