Understanding Implications of Credit Ratings

Very Hard Fixed Income Securities Credit Ratings

In the context of credit ratings for fixed income securities, it is crucial to understand how different ratings reflect the risk of default. Credit rating agencies assign ratings based on the issuer's creditworthiness and underlying financial health. Suppose a company named XYZ Corp has recently been rated as 'BB-' by a major credit rating agency, while its closest competitor is rated 'B+'.

Which of the following statements is most accurate regarding the implications of these credit ratings for investors considering bonds issued by these companies?

The bonds issued by XYZ Corp are considered to have a higher risk of default than those issued by its competitor.

The difference between a 'BB-' and a 'B+' rating indicates that both issuers are of the same credit quality and pose equivalent risk to investors.

Investors will likely demand a lower yield for bonds issued by XYZ Corp compared to its competitor due to the higher credit rating.

Hint

Submitted6.2K

Correct5.2K

% Correct85%