Credit Risk Measurement for ABC Corp's Bond

Medium Credit Analysis And Valuation Credit Risk Measurement

ABC Corp is a manufacturing company that has issued a 10-year bond with a coupon rate of 5%. Recently, the company has experienced a decline in demand for its products, leading to a decrease in revenue. As a result, the market has begun to view ABC Corp as a higher credit risk. Analysts are now assessing the company’s credit risk using various methods, including the Altman Z-score and credit spreads.

Which of the following statements accurately reflects an approach to measuring the credit risk associated with ABC Corp's bond?

Calculating the Altman Z-score, which incorporates profitability, leverage, liquidity, solvency, and activity ratios.

Using the bond's modified duration to assess interest rate risk.

Focusing solely on historical default rates to predict future default likelihood.

Hint

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