Canadian Securities Course (CSC) Practice Exam

Bonds are generally considered to involve lower risk compared to stocks, real estate investment trusts (REITs), and options. This is primarily because bonds are debt instruments that pay interest over a specified period and return the principal amount at maturity, making them less volatile than equity investments.

In essence, when an investor buys a bond, they are lending money to the issuer, which can be a corporation or government. As a result, they often enjoy a more predictable stream of income through interest payments. Moreover, bonds typically rank higher in a company's capital structure, meaning that in the event of liquidation, bondholders are paid before shareholders.

In contrast, stocks can experience significant price fluctuations based on market movements and company performance, making them riskier. REITs, while providing income through dividends and potential appreciation, are also subject to market risks. Options carry a higher level of complexity and risk due to their leveraged nature and temporary nature, which can lead to total loss of investment if the market does not move in the direction the options trader anticipates. Bonds, by their nature, present a more stable investment choice suited for risk-averse investors.