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Multiple Choice
Which of the following types of bonds has the least risk for investors?
A
Corporate bonds
B
Municipal bonds
C
U.S. Treasury bonds
D
Junk bonds
Verified step by step guidance
1
Understand the different types of bonds mentioned in the problem: Corporate bonds, Municipal bonds, U.S. Treasury bonds, and Junk bonds. Each type has a different risk profile based on the issuer's creditworthiness and the likelihood of repayment.
Corporate bonds are issued by companies and carry a moderate level of risk depending on the financial health of the issuing corporation. They are not considered the least risky.
Municipal bonds are issued by state or local governments. They are generally safer than corporate bonds but still carry some risk, such as the financial stability of the issuing municipality.
U.S. Treasury bonds are issued by the federal government and are considered the least risky because they are backed by the full faith and credit of the U.S. government. Historically, the U.S. government has never defaulted on its debt.
Junk bonds are high-yield bonds with a higher risk of default. They are issued by entities with lower credit ratings and are considered the riskiest among the options provided.