Question at position 28 Bonds with a relatively low risk of default are called _____ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called _____.high quality; lower gradeinvestment grade; lower grade investment grade; junk bonds high quality; junk bonds单项选择题
A
high quality; lower grade
B
investment grade; lower grade
C
investment grade; junk bonds
D
high quality; junk bonds

Question

Question at position 28 Bonds with a relatively low risk of default are called _ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called _.high quality; lower gradeinvestment grade; lower grade investment grade; junk bonds high quality; junk bonds单项选择题

A

high quality; lower grade

B

investment grade; lower grade

C

investment grade; junk bonds

D

high quality; junk bonds

BlackTom AI · Accepted Answer

Credit rating agencies classify bonds: Moody’s uses Aaa, Aa, A, Baa, Ba, B…; S&P and Fitch use AAA, AA, A, BBB, BB, B…. The key cutoff is Baa (Moody’s) or BBB (S&P/Fitch). Securities rated Baa/BBB and above are considered to have relatively low default risk and are labeled investment-grade; those rated below Baa/BBB carry higher default risk and are called junk (also called speculative‑grade or high‑yield) bonds.

Step-by-step reasoning:
1. Identify the rating threshold given in the stem: “Baa (or BBB) and above” — this is the standard definition of investment grade.
2. Recognize the label applied to bonds at or above that threshold: investment-grade securities, because their credit risk is lower and they qualify for many institutional investors’ mandates.
3. For bonds “below Baa (or BBB)” the conventional market term is junk bonds (or speculative-grade/high‑yield); these offer higher coupon yields to compensate for greater default risk.
4. Map the choices to these definitions: the first blank must be “investment grade”; the second must be “junk bonds.”

Why the correct answer is correct:
- “Investment grade; junk bonds” precisely matches the standard industry terminology tied to the Baa/BBB cutoff. Investment-grade denotes relatively low default risk; junk denotes higher default risk and higher yield.

Why the other options are incorrect:
- “High quality; lower grade”: “high quality” usually refers to the very top ratings (AAA/AA), not the broader Baa/BBB-and-above category; “lower grade” is vague and not the conventional term.
- “Investment grade; lower grade”: the first half is right but “lower grade” is not the accepted term—“junk” or “speculative‑grade” is correct.
- “High quality; junk bonds”: “high quality” is too restrictive for Baa/BBB-and-above and mislabels the intended category.