Question

Which of the following securities will likely have the highest return? Group of answer choices A)...

Which of the following securities will likely have the highest return?

Group of answer choices

A) U.S. Treasury Bond maturing in 2027

B) Bbb-rated corporate bond

C) Aaa-rated corporate bond

D) U.S. Treasury Bill

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Homework Answers

Answer #1

It is a simple concept that higher the rating of the bond, lesser will be the interest. If a bond is rated AAA it means that it is bond that will fulfill its commitment without any chance of defaul and hence, the risk on these bonds will be low. So, low risk means low return. Hence, AAA bond will not have highest rate.

US Treasury bill and Treasur bonds are also very much secured as they are issues by government. Government can never default on their payments to the citizens.

However, a BBB rated corporate bond is a lowest or equal to lowest quality bond. Investors buying this bond will take high risk and chances of default on these bonds are high. Therefore, these bonds will have highest return.

Hence, the correct answer is B) Bbb rated corporate bonds.

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