Implications of Credit Rating Downgrade

Very Hard Fixed Income Securities Credit Ratings

ABC Corporation has recently been downgraded from a BB rating to a B rating by a major credit rating agency. This downgrade reflects a reassessment of the company's creditworthiness, influenced by factors such as its declining revenue and increasing leverage. Investors in the fixed income market pay significant attention to credit ratings as they impact interest rates and investment decisions.

Which of the following statements best describes the implications of ABC Corporation's downgrade for an investor?

The downgrade may lead to an increase in ABC Corporation's borrowing costs due to higher perceived risk.

Investors should expect that ABC Corporation's bond prices will increase, reflecting a higher demand following the downgrade.

The downgrade indicates that ABC Corporation is now more likely to issue convertible bonds instead of traditional fixed income securities.

Hint

Submitted7.6K

Correct4.2K

% Correct55%