Final answer:
BBB rated bonds are correctly called investment-grade bonds, which is true. These bonds are considered safer investments with lower risk of default. Investors are compensated for the risk through yields that typically follow a hierarchy where Treasury bonds pay more than bank accounts and AAA rated corporate bonds pay more than Treasury bonds.
Step-by-step explanation:
BBB rated bonds are indeed called investment-grade bonds. This is true. Investment-grade bonds include those with ratings of BBB- and above by rating services such as Standard & Poor's and Baa3 and above by Moody's.
These ratings suggest that the bonds have a lower risk of default and are considered safer investments compared to those with lower ratings, which are called high-yield or 'junk' bonds. Investment-grade bonds typically offer lower yields compared to high-yield bonds, reflecting their lower risk.
When considering the investment in bonds, it's essential to understand bond yield, which is the rate of return an investor can expect. 10-year Treasury bonds usually offer higher returns than bank accounts, while AAA rated corporate bonds provide even higher yields to compensate for the increased risk compared to government-issued securities. All bonds carry some level of risk associated with interest rate changes, inflation, and the borrower's ability to repay, but investment-grade bonds are generally perceived as low to moderate in risk.