Assessment of Credit Risk Measurement

Very Easy Credit Analysis And Valuation Credit Risk Measurement

In credit analysis, investors assess the likelihood of a borrower defaulting on their debt obligations. One common method used to quantify credit risk is to evaluate the credit ratings assigned by specialized rating agencies. These ratings give an indication of the creditworthiness of a borrower or the risk level associated with a fixed income security.

Which of the following statements accurately describes how credit risk is measured?

Credit risk is evaluated solely based on the historical default rates of similar issuers.

Credit risk is assessed using both quantitative measures (like debt-to-equity ratios) and qualitative assessments (like management quality).

Credit risk is determined exclusively through the rating provided by credit rating agencies.

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