3. According to an article on the junk bond market in Europe published in the Economist in 2016, "The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year." (a) How can you tell whether a newly issued bond is a junk bond? (b) Why would the spread between government bonds and junk bonds have been rising? (c) Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.

3. According to an article on the junk bond market in Europe published in the Economist in 2016, "The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year." (a) How can you tell whether a newly issued bond is a junk bond? (b) Why would the spread between government bonds and junk bonds have been rising? (c) Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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