Fixed Income MCQ - Fixed Income Section 2

66 Analyst 1: Bonds with the same credit rating have a comparable probability of default and comparable severity of loss given default.
Analyst 2: Bonds with the same credit rating have a comparable probability of default but the severity of the loss is not necessarily comparable.
Which analyst’s statement is most likely correct?

Credit ratings primarily reflect the probability of default, but not necessarily the severity of loss given default.

67 An analyst is analyzing industry structure, industry fundamentals, and company fundamentals while rating a particular corporate bond. Which component of credit analysis is he currently analyzing?

Analyzing industry structure, industry fundamentals, and company fundamentals, come under the capacity category of traditional credit analysis.

68 Which of the following assets is not included in the value of collateral while analyzing the collateral for a debt issue?

Goodwill is not included in the value of collateral while analyzing collateral for any issue. Goodwill is generally written down when the company performance is poor.

69 The quality and value of the assets supporting the issuer’s indebtedness is called:

Collateral refers to the quality and value of the assets supporting the issuer’s indebtedness.

70 ABC Corp. manufactures a commodity product in a highly competitive industry in which no company has significant market share and where there are low barriers to entry. Which of the following best describes ABC’s ability to take on substantial debt?

Companies in industries with those characteristics typically have low margins and limited cash flow and thus cannot support high debt levels.