Linda decides to purchase bonds in her favorite medical supply company because she believes bonds provide stable cash flows and she will profit when the company shows higher profits. Your best response to this should be:

1. Bonds are risky because the company has no obligation to repay any fixed amount; they only do so because things are going well.

2. Bonds are risky because the company cant deduct interest payments from their tax obligation.

3. Bonds represent a contractual obligation to repay the stated amount, and the company will share additional cash flows if they come in better than expected.

4. Bonds represent a contractual obligation to repay the stated amount, but dont represent an ownership claim on the companys higher cash flows.

5. Bonds pay dividends and stocks pay interest.