Which of the following statements about junk (high-risk) bonds is true?
A)They never outperform treasury bonds since they're too risky.
B)The price of junk bonds increase as their perceived risk increases.
C)They tend to perform best during recessions.
D)One can profit by owning them if market perceptions of their risk decline.

Question

Quizplus · Accepted Answer

Junk bonds are high-risk, high-yield bonds that are issued by companies with a less-than-stellar credit rating. As such, they carry a higher risk of default than investment-grade bonds. However, if market perceptions of their risk decline, their price can increase, and investors can profit from owning them. Thus, option D is the correct statement. Option A is incorrect as junk bonds can potentially outperform treasury bonds in certain market conditions. Option B is incorrect as the price of junk bonds usually decreases as their perceived risk increases. Option C is also incorrect as junk bonds tend to perform poorly during recessions as there is a higher risk of default.

Which of the Following Statements About Junk (High-Risk) Bonds Is