Do some research on junk bonds. What kind of controversies do you see with them

If you have poor credit due to being delinquent on credit card debt or other issues, chances are the bank is going to charge you a higher interest rate on a personal loan, or it might not give you a loan at all. Corporations face the same problems. If a company takes on too much debt or is otherwise considered to be a credit risk, then it also gets low credit ratings. In this case, if it wants to take on more debt it needs to issue what is known as “junk bonds,” or as corporations prefer to call them, “high-yield bonds.”

Whatever you call these types of bonds, their key feature is that they pay higher interest than bonds from a corporation that has a high credit rating. If you have a 401(k) or other retirement investment fund, chances are you have the option to make a portion of your investment in these higher risk/higher return bonds.

Do some research on junk bonds. What kind of controversies do you see with them? Do you think they are a solid investment for your retirement, perhaps no riskier than most investments? Or do they deserve the derogatory term “junk”? Share the links to the articles you find with your classmates, and discuss your opinions as to whether you think the higher interest rate justifies the increased risk.

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Solution preview

Junk bonds refer to the various securities which pay high interest since organizations with little collateral issue them. Junk bonds can also entail the corporate bonds which are at both high-risk and high-return. Since the case of Michael Milken who is a convicted felon even after being a financial genius by turning the junk bonds into the lifeline of credit for many emerging companies in the 1970s, junk bonds have since been a controversial issue………………………..

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