Question

Why are bonds somewhat risky to buy, even

though they make predetermined payments based on a fixed rate of interest?

Short answer

Bonds are hazardous because buyers may lose a lot of money if rates go up after they purchase them.

Step-by-step solution

Definition of Bonds.

It is a bank loan in which the issuer pays the creditor principal and interest.

Explanation of solution.

Any buyer who purchases the bonds would get a fixed interest rate that is set at the time of issuance. Assume the investor purchased a $\$1,000$ bond at $6\%$ interest. He buys the bond when the interest rate jumps to 10%. That means the investor invested $\$1,000$ at $6\%$ and received $\$60$, while those who bought after him received $\$100$. So, here's the $\$40$ deficit. Interest rates are the term for this. Because the potential cost of owning a reduced interest bond is higher in these instances, buyers lose money.