High yield, non-investment-grade bonds are commonly referred to as which type of bonds?

High yield, non-investment-grade bonds are commonly referred to as which type of bonds?

• A. Blue Chip Bonds
• B. Savings Bonds
• C. Junk Bonds
• D. Municipal Bonds

Answer: (C)

The main concept is understanding credit quality and return risk in bonds. High yield, non-investment-grade bonds are called junk bonds because they carry higher default risk and thus offer higher coupons to attract investors. Bond ratings below investment grade (the cutoff is BBB- or Baa3 and below) signal greater credit risk; issuers may be more likely to miss payments, so investors demand a higher yield as compensation. The term “junk” reflects this speculative nature, even though these bonds can still be a viable option for certain portfolios seeking extra income and risk tolerance. Other options refer to different categories: Blue Chip Bonds describe high-quality, typically investment-grade bonds from stable issuers; Savings Bonds are government-issued, low-risk savings instruments; Municipal Bonds are state or local government debt, often with tax advantages. None of these specifically capture the high yield, non-investment-grade concept.

The main concept is understanding credit quality and return risk in bonds. High yield, non-investment-grade bonds are called junk bonds because they carry higher default risk and thus offer higher coupons to attract investors. Bond ratings below investment grade (the cutoff is BBB- or Baa3 and below) signal greater credit risk; issuers may be more likely to miss payments, so investors demand a higher yield as compensation. The term “junk” reflects this speculative nature, even though these bonds can still be a viable option for certain portfolios seeking extra income and risk tolerance.

Other options refer to different categories: Blue Chip Bonds describe high-quality, typically investment-grade bonds from stable issuers; Savings Bonds are government-issued, low-risk savings instruments; Municipal Bonds are state or local government debt, often with tax advantages. None of these specifically capture the high yield, non-investment-grade concept.