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.

The correct answer is: D. Some companies promise higher interest rates in order to attract the attention of investors.

A bond is a financial instrument which works as a debt guarantee. An issuer owes a debt to specific holders and have to pay them based on a interest rate, this supposes certain extra income for the holders as benefit.

In this way, bonds can be high risk or low risk, this depends on the interest rate, that is, how much it pays to holders. When the interest rate of a bond rises (a direct consequence is that pays more money), its price tend to fall, because the demand increase drastically, becoming an unstable financial instrument, which is part of the high risk.

However, a specific reason to this higher interest rate of some bonds is the marketing applied to catch more holders. When people look to invest in a bond, the first characteristic they look is "how much money it will pay", "what's the direct benefit from it". In consequence, companies advertise bonds answering this question, they say to public that their company could pay a lot of money with high interest rate, this way, people will show interest and buy the financial instrument, but at the end, the risk increases because this a fictional state, which can drop easily.

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