Which of the following statements regarding junk bonds is true?
A) Junk bonds typically offer lower yields to maturity than investment-grade bonds.
B) Junk bonds have higher priority in bankruptcy than preferred stock.
C) Junk bonds offer no coupon payments to investors.
D) Junk bonds are typically defined as bonds with default probabilities of 25% or higher.

Question

Quizplus · Accepted Answer

Junk bonds, also known as high-yield bonds, have a lower priority in the event of bankruptcy than secured debt, but they have a higher priority than equity instruments like preferred or common stock. This means that in the event of liquidation, junk bondholders are paid out after secured creditors but before shareholders.

Which of the Following Statements Regarding Junk Bonds Is True