Products & Their RisksQuestion 16 of 398
A high-yield ('junk') bond generally offers a higher coupon than an investment-grade bond because it:
a.Has a longer maturity in every case
b.Is always secured by real estate
c.Is exempt from federal income tax
d.Carries greater credit (default) risk
Explanation
High-yield bonds are rated below investment grade, so issuers must pay a higher coupon to compensate investors for greater credit or default risk. The higher yield is not due to maturity length, collateral, or tax exemption.
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