Question

You are a corporate bond portfolio manager working for Endicott Industries’ pension fund. Your boss has...

You are a corporate bond portfolio manager working for Endicott Industries’ pension fund. Your boss has asked you to analyze a possible investment in the bonds of Kirkwood Pipe, a pipe manufacturer. The company’s bonds are rated B2/B-. These bonds are considered

A.

Hybrid bonds

B.

Medium grade bonds

C.

High-yield bonds

D.

Investment grade bonds
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Answer #1

The stated bonds are rated B2/B-. These bonds are highly speculative, with high degree of risk. Such bonds offer higher return and hence are High Yield Bonds.

The answer is option B

Other choices:

Hybrid bonds have the combination of characteristics of both debt and equity (like convertible bonds)

Medium grade bonds are those rated A1 to Baa3 Or A+ to BBB-

Bonds rated AAA to BBB- are generally treated as investment grade. The sted bonds do not belong to that category.

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