There is an inverse relationship between bonds' quality ratings and their required rates of return.Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the ratings get lower.

Question

Quizplus · Accepted Answer

This statement is true. Generally, bonds with higher ratings are considered less risky and therefore require lower rates of return. On the other hand, lower-rated bonds are perceived as riskier and require higher rates of return to compensate investors for the risk they are taking.

There Is an Inverse Relationship Between Bonds' Quality Ratings and Their