What characteristic is true of bonds compared to equities?

Bonds are generally characterized as lower risk compared to equities, primarily due to their priority in the capital structure of a company and their fixed income nature. When a company issues bonds, it is essentially borrowing money from investors and agreeing to pay back the principal along with interest at specified intervals. In the event of liquidation or bankruptcy, bondholders are repaid before equity shareholders, making bonds a safer investment.

Furthermore, the fixed interest payments that bonds provide contribute to their lower risk profile. Investors can rely on these predictable cash flows, which contrast with equities that can be much more volatile and do not guarantee any returns. Equity holders may receive dividends, but these are not fixed and can vary based on the company’s profits and decisions made by its board.

In terms of the other options, while equities can offer higher returns over the long term, bonds are structured to provide more stable and consistent returns, making option A less accurate. Option B is incorrect because bonds do not represent ownership; they represent a creditor relationship with the issuer. Lastly, option D is misleading, as bonds can and often do trade at different prices in the market, which may not correspond to their original par value.