Which of the Following Bonds Have the Highest Default Risk

question 17

Multiple Choice

Which of the following bonds have the highest default risk for a given return?

• A) A U.S Treasury bond with a 2-year maturity.
• B) An AAA corporate bond with a 7-year maturity.
• C) A BBB corporate bond with a 3-year maturity.
• D) A CCC corporate bond with a 10-year maturity.
• E) An AAA corporate bond with a 3-year maturity.

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Definitions:

Investing Activities

Transactions involving the purchase and sale of long-term assets and other investments not considered cash equivalents.

Financing Activities

Operations that lead to modifications in the magnitude and structure of an entity's equity capital or debt.

Accrued Expenses

Expenses that have been incurred but not yet paid for or recorded through a formal payment, reflecting in the financial statements through adjusting entries.

Prepaid Insurance

Expenses paid in advance for insurance coverage, which is recognized as an asset until the period the insurance benefits are used up.