Understanding 'BBB' Rating and Credit Risk

Very Easy Credit Analysis And Valuation Credit Risk Measurement

A corporate bond has a rating of 'BBB' from a major credit rating agency. As an analyst, you are tasked with assessing the credit risk associated with this bond. Credit ratings measure the potential default risk of issuers and their ability to meet debt obligations.

Based on standard credit rating classifications, which of the following statements is most accurate regarding the bond's credit risk?

A 'BBB' rating indicates a high level of credit risk and suggests the bond is likely to default.

A 'BBB' rating reflects moderate credit risk and suggests the bond is investment grade.

A 'BBB' rating is the lowest category of junk bonds and indicates a high probability of default.

Hint

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