Question

Rank from lowest credit risk to highest credit risk the following bonds, with the same time to maturity, by their yield to maturity: Treasury bond with yield of 5.55%, IBM bond with yield of 7.95%, Trump Casino bond with a yield of 9.15%, and Banc Ono bond with a yield of 6.12%. A. Treasury, Trump Casino, Banc Ono, IBM B. Trump Casino, IBM, Banc Ono, Treasury C. Treasury, Banc Ono, IBM, Trump Casino D. Trump Casino, Banc Ono, IBM, Treasury

Answer 1

Answer: C. Treasury, Banc Ono, IBM, Trump Casino

Explanation: To ensure return on investment, investor tends to consider low risk investment with early maturity. Low risk investment yield lower returns when compared to high risk investments. These bond investment are ranked from the lowest risk to the highest risk;

Treasury bond with yield of 5.55%,

Banc Ono bond with a yield of 6.12%,

IBM bond with yield of 7.95%,

Trump Casino bond with a yield of 9.15%.

Answer 2

C) Treasury, Banc Ono, IBM, Trump Casino

Step-by-step explanation:

Investors are risk averse, so the higher the yield to maturity, the higher the risk. So if you want to rank the bonds from lowest to highest risk, all you need to do is rank them form lowest to highest yield to maturity:

1. Treasury bond with yield of 5.55%
2. Banc Ono bond with a yield of 6.12%
3. IBM bond with yield of 7.95%
4. Trump Casino bond with a yield of 9.15%