Which of the following financial market securities would probably pay the highest interest rate?
A) A bond issued by a large, well-established (blue chip) company.
B) A bond issued by a start-up company in a newly emerging industry.
C) A government bond issued by the government of France.
D) They would all pay about the same rate of interest.

Question

Quizplus · Accepted Answer

The bond issued by a start-up company in a newly emerging industry would most likely pay the highest interest rate because it carries a higher risk than the others. Investing in a start-up comes with higher risk since their future is unknown, which means investors demand a higher rate of return to compensate them for the added risk.

Which of the Following Financial Market Securities Would Probably Pay