What is the difference between investment-grade bonds and speculative-

QUESTION

What is the difference between investment-grade bonds and speculative-grade bonds?

What will be an ideal response?

ANSWER

Answer: Investment-grade bonds are relatively safe with little chance the issuer will default on them. Speculative-grade bonds are considered higher risk with a greater probability of default. Due to their higher level of risk, they pay about 50 percent more interest than investment-grade bonds.
Explanation: Bonds are long-term IOUs issued by governments and corporations, contracts on which the issuer pays the buyer interest at regular intervals. Bonds are divided according to risk into investment-grade bonds and speculative-grade (junk) bonds.