Tax & EvaluationQuestion 107 of 110
The dominant risk in a high-yield corporate bond fund compared with a Treasury fund is:
a.Reinvestment risk
b.Legislative risk
c.Credit risk, the possibility that issuers default or are downgraded
d.Currency risk
Explanation
High-yield issuers have weaker balance sheets, so default and downgrade risk drives their price behavior and explains the higher yield. Treasuries carry essentially no credit risk. Reinvestment, legislative, and currency risks exist in various portfolios but do not distinguish high-yield from Treasury funds.
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