Investors who purchase bonds having lower credit ratings should expect:

Question

Quizplus · Accepted Answer

Bonds with lower credit ratings have a higher risk of default, which means investors should expect a higher possibility of default, making it a riskier investment. This higher default risk is compensated by offering higher yields to maturity, making choice (A) incorrect. The coupon payments also typically increase with higher credit ratings, so choice (C) is incorrect. Finally, the purchase price of a bond is determined by a variety of market factors, and there is no clear relationship between credit ratings and purchase prices, making choice (D) also incorrect.

Investors Who Purchase Bonds Having Lower Credit Ratings Should Expect