Which of the Following Statements Concerning Junk Bonds Is MOST

question 11

Multiple Choice

Which of the following statements concerning junk bonds is MOST correct?

• A) A rational investor will always prefer a AAA-rated bond to a junk bond.
• B) Junk bonds have higher interest rates than AAA-rated bonds because of the higher risk.
• C) Junk bonds may also be called low-yielding securities.
• D) Junk bonds are priced higher than AAA-rated bonds because junk bonds are more risky.

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Definitions:

Expected Annual

Refers to the anticipated yearly financial performance or returns, often used in the context of earnings, returns, or income.

Inflation

The rate at which the general level of prices for goods and services is rising, eroding purchasing power.

Time Value

The difference between the current value of the option and the value of the option if it were immediately exercised.

Present Value

Present value signifies the current value of a future amount of money or a sequence of cash flows, discounted at a given rate of return.