Income bonds pay interest only when the amount of the interest is actually earned by the company. Thus, these securities cannot bankrupt a company and this makes them safer than regular bonds.

Question

Quizplus · Accepted Answer

This statement is incorrect. Income bonds are actually riskier than regular bonds because the interest payments are not guaranteed and depend on the company's earnings. If the company does not earn enough to pay the interest, then the bondholders may not receive any income at all. This means that income bonds can potentially bankrupt a company if it is unable to pay the interest.

Income Bonds Pay Interest Only When the Amount of the Interest