interest rate than Treasury bonds.

FIGURE 17.5 Interest Rates for Corporate Bonds and Ten-Year U.S. Treasury Bonds The interest rates for corporate

bonds and U.S. Treasury bonds (officially “notes”) rise and fall together, depending on conditions for borrowers and

lenders in financial markets for borrowing. The corporate bonds always pay a higher interest rate, to make up for the

higher risk they have of defaulting compared with the U.S. government.

The bottom line for bonds: rate of return—low to moderate, depending on the borrower's risk; risk—low to

moderate, depending on whether interest rates in the economy change substantially after the bond is issued;

liquidity—moderate, because the investor needs to sell the bond before the investor regains the cash.

Stocks

As we stated earlier, the rate of return on a financial investment in a share of stock can come in two forms: as
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