Question

14) Why would an issuer issue junk bonds? Check all that apply.  

a) Because the issuer cannot obtain the same level of leverage is otherwise.

b) Because the issuer thinks that the rating agency is wrong.

c) Because the issuer is not expected to pay it back.

d) Because the acquirer is thinking that additional investment or cash flows will allow the issuer to quickly buy back bonds.

e) Because investors prefer it when the bond offering is larger.

Answer 1

Answer - Option C , Option E, Option A

Because the issuer is not expected to pay it back

Because investors prefer it when bond is offering larger

Because the issuer cannot obtain the same leverage.

These bonds have poor credit rating and thus carry higher leverage. They cannot be issed with same leverage

These are the reasons why junk bonds are issued . This is after the credit rating agencies give a poor rating to the company. It has to give this high return as a bait to investors .