Y. Dawne, Content Blogger, Diploma in Journalism, Amsterdam, Netherlands
Answered Feb 07, 2019
The correct answer to this question is FALSE.
Companies that have a high risk of defaulting on their interest payments usually have high interest rates on their corporate bonds. These types of bonds are referred to as high yield bonds, or junk bonds. Junk bonds are risky investments, but they have speculative appeal because they offer much higher yields than bonds with higher credit ratings. Investors demand that junk bonds pay higher yields as compensation for the risk of investing in them.
If a junk bond manages to turn its financial performance around and has its credit rating upgraded, the investor may see a substantial appreciation in the bond’s price.