Difference between revisions of "Junk bond"
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These investments are called "junk" because the companies are on the brink of insolvency or bankruptcy. However, the high yields paid by junk bonds provide compensation for that high risk, and the investment may become a profitable one, particularly if the [[economy]] improves. | These investments are called "junk" because the companies are on the brink of insolvency or bankruptcy. However, the high yields paid by junk bonds provide compensation for that high risk, and the investment may become a profitable one, particularly if the [[economy]] improves. | ||
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| + | Junk bonds have been used to finance hostile takeovers, as in the takeover craze of the 1980s. | ||
[[category:finance]] | [[category:finance]] | ||
Revision as of 18:23, June 30, 2017
A junk bond is a risky, interest-bearing investment that pays a high rate of return in order to compensate for the likelihood of default (non-payment).
The credit rating of junk bonds is no better than "Ba" by Moody's Investors Service, or "BB" by Standard and Poor's.
These investments are called "junk" because the companies are on the brink of insolvency or bankruptcy. However, the high yields paid by junk bonds provide compensation for that high risk, and the investment may become a profitable one, particularly if the economy improves.
Junk bonds have been used to finance hostile takeovers, as in the takeover craze of the 1980s.