Question

Investing in bonds Most people believe that bonds are low risk investments. What do you think?

Answer 1

Bonds are financial instruments in which the lender promises to pay the principal and interest as per terms of Bond instrument to the buyer or investor. Normally the time period of the bond is defined and has the following characteristics.

• The principal of bond value is paid at end of the term
• The interest is paid as per terms of bond instrument which can be quarterly , half yearly or yearly

The bonds if issued by government agencies are considered as low risk investment as the chances of default risk is low. Which means the inability of lender to pay the amount on maturity is very low in case of government agencies

The default risk in case of private ltd companies or whose credit rating is low is high and becomes a high risk investment