All else equal, which of the following bonds would you expect to offer the highest promised rate of
Return?
A)BBB bond
B)A+ bond
C)AAA bond
D)BB+ bond

Question

Quizplus · Accepted Answer

The lower the credit rating of a bond, the higher the promised rate of return required to compensate investors for the increased risk. Therefore, the BB+ bond would likely offer the highest promised rate of return, as it has a lower credit rating than the other options. All else equal, a lower credit rating is associated with higher risk of default and therefore, a higher promised rate of return. The BB+ bond has a lower credit rating than the other bonds listed and thus is expected to offer the highest promised rate of return.

All Else Equal, Which of the Following Bonds Would You