Junk Bond Basics
These bonds are called “junk” because they carry this high financial danger.
What is risk?
Junk bonds fall below this credit rating level.
What is investment grade?
The biggest risk of owning a junk bond is that the company may do this.
What is default?
Junk bonds became famous in the 1980s thanks to this Wall Street boom.
What is the high‑yield bond boom?
This is the yearly return a bond pays.
What is yield?
Junk bonds offer this to attract investors willing to take a chance.
What is a high yield?
These two agencies are famous for rating bonds.
What are Moody’s and Standard & Poor’s?
When a company can’t pay interest or principal, it enters this legal process.
What is bankruptcy?
This type of corporate takeover was often financed with junk bonds.
What is a leveraged buyout (LBO)?
This is the amount a bond pays back at maturity.
What is face value?
This term describes the extra return investors demand for taking on more risk.
What is a risk premium?
Bonds rated BB+ or lower fall into this category.
What are junk bonds?
Investors demand higher yields to compensate for this type of uncertainty.
What is credit risk?
This decade saw major scandals involving junk bond traders.
What are the 1980s?
This term describes the date when a bond must be fully repaid.
What is maturity?
Junk bonds are usually issued by companies in this financial condition.
What is poor or unstable financial health?
Investment‑grade bonds offer lower returns because they have this.
What is lower risk?
Junk bonds often drop in value when this happens to the economy.
What is a recession?
Junk bonds played a role in the rise of this type of aggressive corporate investor.
What is a corporate raider?
This is the price investors pay to buy a bond.
What is market value?
This is the main reason companies choose junk bonds instead of traditional loans.
What is difficulty borrowing money elsewhere?
This term describes bonds that move from investment grade down to junk status.
What is a fallen angel?
This term describes the chance a bond issuer will fail to meet payments.
What is default probability?
This major savings‑and‑loan crisis was partly fueled by risky junk bond investments.
What is the S&L crisis?
This term describes the interest rate printed on the bond itself.
What is the coupon rate?