Investment VehiclesQuestion 41 of 110
A high-yield (junk) bond is best characterized by which of the following?
a.A below-investment-grade credit rating and higher default risk
b.A rating of AAA and minimal default risk
c.A tax-exempt status for all investors
d.A guarantee by the U.S. Treasury
Explanation
High-yield or junk bonds carry below-investment-grade ratings (below BBB- or Baa3) and compensate investors for greater default risk with higher yields. They are more sensitive to the issuer's financial health and economic conditions. They are neither government guaranteed nor uniformly tax-exempt.
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