Question

Which one of the following statements concerning bond ratings is correct? Bond ratings assess both interest...

Which one of the following statements concerning bond ratings is correct?

Bond ratings assess both interest rate risk and default risk.

Investment grade bonds are rated BB or higher by Standard & Poor's.

Bonds rated BB or lower by Standard & Poor's are referred to as "junk" bonds.

The highest rating issued by Standard & Poor's is AA.
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Answer #1

Option C. Bonds rated BB or lower by Standard and Poor are referred to as " junk bonds"

Explanation

Bonds which are BBB-, BB and below are junk bonds or non-investment grade bonds by S&P

Bond rating agencies measures the credit worthiness of the company's bond with the rating depending on the credit metrics calculated from the balance sheet and cash flows. Therefore, it is specific default risk.

Bonds with rating BBB- and above are investment grade by Standard & Poor

The highest raring by S&P is AAA

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