Question

There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the ratings get lower.

Answer 1

True

Step-by-step explanation:

Investors are risk adverse, that means that under normal conditions if they have to choose between two securities that yield the same rate of return, they will always choose the less risky.

That means that riskier securities must yield higher rates of return to compensate for the higher risk.