The Junk Bonds

Paper Summary:

This paper examines how junk bonds are a consequence of the growing trend of many companies to attract value to their bonds through false propaganda and enticing dividends. It looks at how, although they carry a definite amount of risk associated with them, if invested wisely and prudently, they can also return profits that will be many time higher that the "safer" bonds. It also shows how experts believe that stock market crashes and scams, which are often attributed to the junk bonds, are, in fact, due to the investor's lack of concern for risk in the mad rush to make money.

From the Paper:

"The concept of junk bonds becomes relevant when we consider the inherent risk that the share market offers to the customer. According to financial statutes, every bond has what is called as the default risk associated with it. When an issuer of the bond is not able to pay timely dividends to the shareholders, there arises a situation where the company is said to be in default. The bonds that are issued by the US government or federal institutions are said to be relatively free of default risk since the government guarantees it and so the investor can be assured that his money is safe. On the contrary, for the shares of non-federal agencies or private companies, the inherent risk is gauged by what is known as credit ratings, which are issued by independent and competent companies."

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