Question

Which of the following bonds should have the highest rate of return?

	A.	Treasury bond
	B.	AAA rated corporate bond
	C.	BBB rated corporate bond with no call provision
	D.	BBB rated corporate bond that is callable

Answer 1

The correct answer will be option D i.e. BBB rated corporate bond that is callable since among all the options these bonds are the most riskiest to invest in since they have lower credit rating as well as a call provision

Option A is incorrect since they are least risky bonds and hence offer lower return

Option B is incorrect since they are they have the highest credit rating and therefore offers lower return

Option C has lower credit rating but they do not have any call provision and hence offers a return which is lower than the bond which has a call provision.

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