Question

There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the ratings get lower. Is this statement true or false? Write a couple of sentences explaining your answer

Answer 1

Answer:

The statement is true.

Explanation:

The investor aversion to risk must be compensated with an increased return to make it more feasible.

If all bonds' return were the same then, investor will not invest on high risk bonds.

Company's will not issue the bond to yield higher than they can pay nor higher if they can do it the same as AAA. They do it as the only way to attract investment to his business.