23. Which of the following ratings indicate that a bond is low-quality? I. Baa I

Question

23. Which of the following ratings indicate that a bond is low-quality? I. Baa IV. BB a. I only b. III and IV only d. I and III only e. I, II and III 24. The systematic risk principle states that the expected return on a risky asset depends onl on which one of the following? a. Unique risk b. market risk c. diversification d unsystematic risk 25. Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk? a. systematic b. unsystematic c. diversification d. portfolio management

Explanation / Answer

23. B and BB graded bonds would fall under the non-investment grade bonds i.e. low quality bonds. BBB and Baa fall under the investment grade bonds.

24. Market risk is called the systematic risk. Systematic risk is also called the undiversifiable risk. Unique and diversification risk are called unsystematic risks.

25. Diversification refers to the practice of investing in a variety of diverse assets as a means of reducing risks.

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