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IMANET CMA Exam - Topic 1 Question 127 Discussion

Junk bonds are
A) Securities rated at less than investment grade.
B) Worthless securities.
C) Securities that are highly risky but offer only low yields.
D) Considered illegal since the collapse of the Drexel Burnham Lambert firm

IMANET CMA Exam - Topic 1 Question 127 Discussion

Actual exam question for IMANET's CMA exam
Question #: 127
Topic #: 1
[All CMA Questions]

Junk bonds are

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Suggested Answer: A

Junk bonds are high-risk and therefore high-yield securities that are normally issued when the debt ratio is very high. Thus, the bondholders have as much risk as the holders of equity securities. Such bonds are not highly rated by credit evaluation companies. Junk bonds have become accepted because of the tax deductibility of the interest paid.


by Maryann at Jun 02, 2026, 05:26 AM

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Fannie
2 hours ago
I vaguely recall something about junk bonds being risky but not necessarily illegal, so D doesn’t sound right to me.
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Shad
5 days ago
I think I saw a similar question about bond ratings in practice exams, and it pointed to A being correct.
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Harley
10 days ago
I’m not entirely sure, but I feel like junk bonds can still have some value, so B seems wrong.
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Shasta
16 days ago
I remember studying that junk bonds are rated below investment grade, so I think A is the right answer.
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