Fixed Income - Fixed Income Section 2
- Option : C
- Explanation : The subordinated bond would have its rating notched lower than the company’s BBB rating by one notch.
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- Option : B
- Explanation : Investor is incorrect because rating agencies may review and change rating at any time before maturity. If the rating is downgraded in the future, it reflects greater probability of default.
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58. Which of the following is least likely a risk of relying on rating from credit rating agencies?
- Option : B
- Explanation : Among the mentioned list the “default risk is difficult to assess” is not the risk of relying on ratings from the credit rating agencies.
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59. Which of the following is least likely to be a limitation of a credit rating agency’s ratings?
- Option : B
- Explanation : Options A and C are true statements and represent limitations of credit ratings. Option B does not represent a limitation. Credit ratings can be used to compare bonds across different industries.
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- Option : A
- Explanation : The mentioned limitation is that credit ratings lag market pricing.
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