Speculative-grade bonds have default risk; investment grade bonds do not.

Question

Quizplus · Accepted Answer

This statement is false. Both speculative-grade bonds and investment grade bonds have default risk, but the probability of default is higher for speculative-grade (also known as high-yield or junk) bonds, while it is lower for investment grade bonds. The difference in default risk is one of the factors that determines the credit rating assigned by rating agencies such as Moody's and S&P.

Speculative-Grade Bonds Have Default Risk; Investment Grade Bonds Do Not