Adding which of the following bonds would minimize the credit risk of his portfolio?

James Johnson manages a bond portfolio with all investment grade bonds.

Adding which of the following bonds would minimize the credit risk of his portfolio?
A . A
B . B
C . C
D . D

View Answer

Answer: A

Explanation:

Minimizing credit risk in a bond portfolio involves selecting bonds with the highest credit quality. Investment-grade bonds are classified from AAA to BBB. Bonds rated AAA have the lowest default risk, which is a key factor in minimizing credit risk in a portfolio. When managing a bond portfolio composed of investment-grade bonds, adding bonds with the highest rating (AAA) will effectively minimize credit risk.