Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:### Bond Rating Question
**Question 45:**
If a bond is considered “Below Investment Grade”, what could its rating be?
**Options:**
a) AAA
b) CCC+
c) Garbage
d) BB+
e) Venezuela
### Explanation:
In the realm of bond ratings, "Below Investment Grade" (also known as "junk" status) implies a greater risk of default and generally higher yield to compensate for this risk. The options above present various possible ratings and terms. Below, we explain what each term represents:
- **AAA**: This is the highest possible rating assigned to a bond, indicating exceptional credit quality and the lowest expectation of risk.
- **CCC+**: This is a "Below Investment Grade" rating, indicating substantial credit risk.
- **Garbage**: This is a colloquial term and not an official rating.
- **BB+**: This is also a "Below Investment Grade" rating, with higher risk than investment-grade ratings, but lower risk compared to CCC+.
- **Venezuela**: This represents a country and not a bond rating, though the mention might imply a highly speculative or risky investment context due to the country’s financial situation.
### Correct Answer:
**Options b) CCC+ and d) BB+ are both correct answers** indicating bonds that are “Below Investment Grade.”
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