Question

suppose the following bond has the same face value, coupon rate of interest, liquidity characteristic, and...

suppose the following bond has the same face value, coupon rate of interest, liquidity characteristic, and maturity date. which bond has the greatest risk?

A. A corporate bond with a BBB rating.

B.A treasury bond.

C.A corporate bond with CCC rating.

D.A corporation bond with an AAA rating.

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Answer #1

The correct answer is c. A corporate bond with CCC rating.

  • Bonds with higher credit ratings means that there is a low risk of default in such bonds.
  • A treasury bond has very less default risk since these are backed by the government and the chances of default are negligible.

  • A corporation bond with credit rating of AAA will have lower risk as the AAA rating bond is the highest rated bond.

  • A corporate bond with a BBB rating has moderate risk of default as compared to CCC rating bond
  • A corporate bond with CCC rating has high credit risk of default.

Thus compared to all the bonds stated in the question a corporate bond with CCC rating will have the greatest risk.

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