Which of the following statements about junk (high-risk)bonds is TRUE?
A) They never outperform treasury bonds since they're too risky.
B) The price of junk bonds increases as their perceived risk increases.
C) They tend to perform best during recessions.
D) One can profit by owning them if market perceptions of their risk decline.

Question

Quizplus · Accepted Answer

Junk bonds are high-risk, high-yield bonds issued by companies with poor credit ratings. As a result, they typically offer higher yields than other types of bonds. Their value can fluctuate widely depending on market perceptions of the issuer's creditworthiness. If market perceptions improve and the issuer's creditworthiness is considered less risky, the price of the bond will increase, and the owner will profit. Therefore, option D is true. Option A is incorrect because junk bonds may outperform treasury bonds during certain periods. Option B is incorrect because the price of junk bonds decreases as their perceived risk increases. Option C is incorrect because junk bonds tend to perform poorly during recessions.

Which of the Following Statements About Junk (High-Risk)bonds Is TRUE