Answer (A) is correct . Junk bonds are high-risk and therefore high-yield securities that are normally issued when the debt ratio is very high. Thus, the bondholders have as much risk as the holders of equity securities. Such bonds are not highly rated by credit evaluation companies. Junk bonds have become accepted because of the tax deductibility of the interest paid.
Answer (B) is incorrect because Junk bonds are not yet worthless; they simply bear high interest rates and high risk.
Answer (C) is incorrect because Junk bonds typically offer high yields.
Answer (D) is incorrect because Drexel Burnham was not the only underwriter to package junk bonds, and they were never illegal.
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