Under which conditions will an investor demand a larger return (yield) on a bond?
A) The bond issue is upgraded from A to AA.
B) The bond issue is downgraded from A to BBB.
C) Interest rates decrease due to decline in inflation.
D) None of the conditions will cause an increase in the bond's yield.

Question

Quizplus · Accepted Answer

When a bond is downgraded (e.g., from A to BBB), it is perceived as riskier. Investors demand a higher return for taking on the increased risk.

Under Which Conditions Will an Investor Demand a Larger Return