Which of the following is an advantage of bonds for a potential investor?

• A. They provide regular interest income.
• B. They offer ownership and voting rights in the issuing company.
• C. They have no risk of default.
• D. They guarantee higher returns than stocks in all market conditions.

Answer: (A)

Verified step by step guidance

1. Understand the nature of bonds: Bonds are debt instruments issued by companies or governments to raise capital. Investors lend money to the issuer in exchange for periodic interest payments and the return of the principal amount at maturity.
2. Analyze the first option: 'They provide regular interest income.' Bonds typically pay interest (known as coupon payments) at regular intervals, making them attractive to investors seeking steady income.
3. Evaluate the second option: 'They offer ownership and voting rights in the issuing company.' Bonds do not provide ownership or voting rights; these are features of equity investments like stocks.
4. Assess the third option: 'They have no risk of default.' Bonds carry a risk of default, especially if issued by entities with lower credit ratings. Default risk depends on the issuer's financial health.
5. Review the fourth option: 'They guarantee higher returns than stocks in all market conditions.' Bonds generally offer lower returns compared to stocks, and their returns are not guaranteed to be higher in all market conditions.