junk bond

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Bonds issued on very doubtful security. The finances of the firm issuing them are regarded as so insecure that there is serious doubt as to whether the interest and redemption payments promised will actually be made. Junk bonds are thus risky to hold, and lenders will hold them only if the promised returns are high enough to give an acceptable expected rate of return, after allowing for a non-negligible probability of default.

Subjects: Economics.

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