Final answer:
With bond ratings, a higher rating means a lower interest rate and a lower risk of default, while lower ratings are associated with higher rates and increased risk. Bond investments are considered moderate in terms of returns, risk, and liquidity, with corporate bonds carrying a higher interest rate than U.S. Treasury bonds due to higher default risk. Option B is correct.
Step-by-step explanation:
Generally, with bond ratings, the higher the rating, the lower the interest rate an investor will receive, and the lower the risk that the issuer of the bond will default. High bond ratings indicate a strong likelihood of the bond issuer paying back their debt, so investors accept a lower yield for the decreased risk. Conversely, bonds with low ratings, often referred to as high-yield or junk bonds, typically offer higher interest rates to compensate for the increased risk of default.
Corporate bonds always pay higher interest rates compared to U.S. Treasury bonds due to the greater risk of default. The rate of return on bonds is low to moderate and is contingent on the borrower's risk, while the risk of investing in bonds can also be considered low to moderate, especially if interest rates fluctuate substantially after issuance. Investors must bear in mind that liquidity is moderate, as they must sell the bond to regain cash.