Which one of the following is most apt to be correct for a CCC-rated bond, compared to a BBB-rated bond?
A)the CCC bond will have a variable-coupon rate.
B)the CCC bond will have a shorter term.
C)the CCC bond will offer a higher promised yield to maturity.
D)the CCC bond will have a higher price for the same term.

Question

Quizplus · Accepted Answer

A CCC-rated bond is considered to be speculative, with a high risk of default. Therefore, investors require a higher promised yield to compensate for this risk. A BBB-rated bond, on the other hand, is considered to be investment grade with a lower risk of default, and thus will offer a lower yield to maturity. Therefore, option C is most likely to be correct. Option A and B are incorrect because the coupon rate and term are not necessarily related to the credit rating. Option D is incorrect because the price of a bond is inversely related to its yield, so a bond with a higher yield (such as a CCC-rated bond) will have a lower price than a bond with a lower yield (such as a BBB-rated bond).

Which One of the Following Is Most Apt to Be