SIE Exam Question 35: Answer and Explanation

Question: 35

What type of bonds are high-risk securities that have received low ratings and produce high yields?

• A. Junk bonds
• B. Municipal bonds
• C. Junior bonds
• D. Convertible bonds

Correct Answer: A

Explanation:

Junk bonds (also called high yield bonds) are high-risk securities that have received low ratings and produce high yields. Municipal bonds are tax-exempt, so investors do not have to pay taxes on the interest from the bonds. A junior bond is corporate debt that, in the event of bankruptcy, will be repaid only after all other debts have been repaid. A convertible bond is a corporate bond that may be exchanged for stock in the company at maturity in lieu of receiving the face value as cash.