Final answer:
The incorrect statement is that the YTM for BBB-rated bonds is normally higher than that for CCC-rated bonds. In reality, CCC-rated bonds, being riskier, usually have a higher YTM to compensate for the greater risk of default compared to BBB-rated bonds. The YTM reflects the return on a bond, influenced by market conditions and issuer credit risk.
Step-by-step explanation:
The incorrect statement among the given options is: c. The YTM for bonds with an BBB credit rating is normally higher than the YTM for bonds with a CCC credit rating. This statement is incorrect because bonds with lower credit ratings (e.g., CCC) are riskier and therefore normally have higher Yields to Maturity (YTM) than bonds with higher credit ratings (e.g., BBB) to compensate investors for the increased risk of default. YTM is set by the market based on various factors including default risk, and it represents the rate of return anticipated on a bond if held until maturity.
Bondholders can hope to receive the cash flows promised by a bond as the maximum amount, but they could receive less if the bond issuer defaults. If the default probability of a bond issuer increases, investors demand a higher yield to compensate for that risk, which in turn raises the YTM of such bonds.
Bonds are essentially loans investors make to corporations or governments. Treasury bonds usually offer lower yields than corporate bonds but are generally considered safer investments. As risk profiles change, so do bond yields, reflecting factors like overall interest rate changes in the economy and the specific creditworthiness of issuers.