Junk bond is a high risk and high yielding security raised by a company in order to raise capital quickly to finance an undertaking.
Junk bonds carry higher risk because the investors don’t know whether they will be repaid with the principal amount and earn regular interests. Companies are ready to pay off the risk by high yield as they want to attract the investors to fund their operations.
When the financial jeopardy is overcome the investors are paid with a high yield in order to compensate the risk which they have faced and raised the capital.