Asked by kylah perry on Apr 28, 2024
Verified
Which statements regarding bond ratings are true?
I.They include quantitative analysis of financial ratios.
II.They include the effects of special covenants and the collateral provisions of the agreement.
III.They include qualitative analysis of the sensitivity of earnings to changes in the economy and inflation.
IV.They instantaneously change as the factors in the market or in the company change.
A) I, II, and IV only
B) I, II, and III only
C) II, III, and IV only
D) I, III, and IV only
Bond Ratings
A grade given to bonds that indicates their credit quality, with ratings provided by agencies like Moody's, S&P, and Fitch.
Quantitative Analysis
The process of using mathematical and statistical techniques to evaluate economic, financial, or business trends and decisions.
Special Covenants
Special Covenants are agreements inserted into financial contracts or bond issues that impose certain conditions or restrictions on the borrower, meant to protect the lender's interests.
- Grasp the role and impact of bond ratings in the investment decision-making process.
Verified Answer
HN
Huong NguyenApr 28, 2024
Final Answer :
B
Explanation :
Statement I is true because bond ratings include quantitative analysis of financial ratios such as debt-to-equity, interest coverage, and cash flow ratios. Statement II is also true because bond ratings consider the effects of special covenants and the collateral provisions of the agreement. Statement III is true because bond ratings include qualitative analysis of the sensitivity of earnings to changes in the economy and inflation. Statement IV is false because bond ratings do not instantaneously change as the factors in the market or in the company change; they are revised periodically based on the issuer's performance and the market conditions.
Learning Objectives
- Grasp the role and impact of bond ratings in the investment decision-making process.