A(n) ________ corporate bond will pay a ________ return.

Question

BlackTom AI · Accepted Answer

The question presents a fill-in-the-blank about corporate bonds and their returns, asking us to select the pairing that makes sense given typical bond risk–return relationships.
Option A: 'lower-rated; higher' — This aligns with the fundamental risk–return tradeoff. Lower-rated (higher‑risk) bonds must offer higher potential returns to compensate investors for taking on more credit risk and default probability.
Option B: 'lower-rated; lower' — If a bond is lower-rated but offers a lower return, that would contradict the risk premium principle: investors would not be compensated for accepting greater default risk, making this pairing inconsistent with standard finance theory.
Option C: 'higher-rated; higher' — Higher-rated bonds are considered safer with lower default risk, and typically offer lower yields. Pairing 'higher-rated' with a 'higher' return would be atypical because the safer credit profile usually corresponds to more modest returns, not elevated ones.
In addition, the phrase 'lower-rated' is commonly associated with higher yields due to risk premia, while 'higher-rated' would correspond to lower yields given stronger credit quality. Therefore, the only option that correctly matches the established relationship between credit quality and yield is the first one.

BUSFIN 1200 AU2025 (2014) Final Exam- Requires Respondus LockDown Browser

A(n) corporate bond will pay a return.

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What is the bond rating cutoff for a bond to be classified as a junk bond?

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BUSFIN 1200 AU2025 (2014) Final Exam- Requires Respondus LockDown Browser

A(n) ________ corporate bond will pay a ________ return.

查看解析

登录即可查看完整答案

类似问题

What is the bond rating cutoff for a bond to be classified as a junk bond?

Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called ________.

Rank these bonds in order from most secure (investment grade) to least secure (non-investment grade/ junk) based on ratings from Standard & Poor's (S&P): Tesla Bond (BB+) 4 Government of Canada Bond (AAA) [ Select ] 2 4 1 3 Netflix Bond (BBB) [ Select ] 4 3 2 1 Walmart Bond (AA) 2

Bonds with AAA rating generally offer lower yields than bonds with BB rating

What is the highest rating a bond can have?

A company with a BBB bond rating will command a higher interest rate on its bonds than a company with a AA bond rating.

Bonds rated below Baa by Moody's or BBB by S&P are junk bonds.

In a consumer society, many adults channel creativity into buying things

更多留学生实用工具

希望你的学习变得更简单

A(n) corporate bond will pay a return.

Bonds with relatively low risk of default are called securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called .