Which of the following statements is true?
A) Investment grade bonds are those rated single B and higher.
B) Federal laws typically allow insurance companies and pension funds to purchase non-investment grade bonds.
C) Because investors are risk averse, they require a premium to purchase a security that exposes them to default risk.
D) All else equal, the higher a bond's rating the higher the coupon rate.

Question

Quizplus · Accepted Answer

This statement is true based on the concept of risk aversion and the fact that investors require a higher return to compensate them for taking on higher levels of risk. A and B are false statements, as investment grade bonds are those rated BBB and higher, and federal laws typically restrict insurance companies and pension funds from purchasing non-investment grade bonds. D is also false because all else equal, the higher a bond's rating, the lower the coupon rate.

Which of the Following Statements Is True