Junk bonds are high-risk bonds that are issued by companies with a low credit rating. These companies usually have a high chance of defaulting on their payments, hence the high risk. However, since investors are taking on more risk, they are compensated with higher yields. Therefore, a junk bond is a high-risk bond that pays high yields.

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A Junk Bond Is

Question 57

Multiple Choice

A junk bond is:

A) a low risk bond that pays high yields.
B) a high-risk bond that pays low yields.
C) a high-risk bond that pays high yields.
D) a low risk bond that pays low yields.

Correct Answer: