10. A bond is considered to be a junk bond if its debt rating is below:...

10. A bond is considered to be a junk bond if its debt rating is below:

A. AAA

B. AA

C. A

D. BBB

Solutions

Expert Solution

Junk bonds differ because of their issuers credit quality.

A bond rating on investment grade debt usually ranges from AAA to BBB,

The bond rated between AAA to BBB , provides higher returns but the risk of borrower defaulting on interest payment is much lower.

Although junk bonds offer higher returns to the bond holders ,their credit ratings are lower than others, junk bonds are typically rated BB or lower by standard poors and ba or lower by moodys

ANALYSIS AS PER STANDARD & POORS

AAA is for investment grade having lowest risk .

AA & A is for investment grade having low risk

but BBB rating is for investment grade with medium risk & after that the rating is BB which is for high risk i.e the rating for junk bonds, which clearly states that the debt rating if falls below BBB , that bond is considered to be junk bond.

CONCLUSION: This analysis clearly resembles that the debt rating below BBB is considered to be junk bond.

jeff jeffy answered 1 year ago

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