Rank from highest credit risk to lowest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 6.55 percent, IBM bond with yield of 10.95 percent, Trump Casino bond with a yield of 9.15 percent, and Banc Ono bond with a yield of 9.46 percent.
A) Treasury, Trump Casino, Banc Ono, IBM
B) Banc Ono, Trump Casino, IBM, Treasury
C) Trump Casino, Treasury, Banc Ono, IBM
D) IBM, Banc Ono, Trump Casino, Treasury

Question

Quizplus · Accepted Answer

Higher yields typically indicate higher credit risk because investors demand more return for taking on more risk. The order from highest yield (and thus highest credit risk) to lowest yield (lowest credit risk) is: IBM bond (10.95%), Banc Ono bond (9.46%), Trump Casino bond (9.15%), and Treasury bond (6.55%).

Rank from Highest Credit Risk to Lowest Credit Risk the Following