Question

bonds with relatively low risk of default are called

1) Bonds with relatively low risk of default are called securities and have a rating of Baa (or BBB) a above; bonds with ratings below Baa (or BBB) have a higher default risk and are called A) investment grade; lower grade C) high quality; lower grade B) investment grade; junk bonds D) high quality; junk bonds 2) Which of the following bonds are considered to be default-risk free? A) municipal bonds C) AAA rated bonds E) None of the above are considered default-risk free. B) investment-grade bonds D) junk bonds

Answer 1

Question 1

The bonds with rating of Baa (or BBB) are considered to have medium risk aptitude or relatively low risk of default and these bonds are called the investment grade bonds.

On the other hand, the bond with rating below Baa (or BBB) such as rating of BB or B or CCC are considered to have high risk aptitude or relatively higher default risk and are called Junk bonds.

Hence, the correct answer is option (B) [Investment grade, Junk bonds].

Question 2

Only the bonds issued by the US federal government are considered as default-risk free.

All other types of bonds have default risk associated with them.

So,

The correct answer is the option (E) [None of the above are considered default risk free].