Moody is one of the largest rating agencies. In comparison with AAA, the rating of BBB indicates which of the following: BBB rated firms provides the same level of return as AAA BBB rated firms provides lower returns than AAA BBB rated firms provides higher returns than AAA Cannot tell simply from rating alone
Moody is one of the largest rating agencies. In comparison with AAA, the rating of BBB indicates which of the following: BBB rated firms provides the same level of return as AAA BBB rated firms provides lower returns than AAA BBB rated firms provides higher returns than AAA Cannot tell simply from rating alone
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
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Moody is one of the largest rating agencies. In comparison with AAA, the rating of BBB indicates which of the following:
- BBB rated firms provides the same level of return as AAA
- BBB rated firms provides lower returns than AAA
- BBB rated firms provides higher returns than AAA
- Cannot tell simply from rating alone
Expert Solution
Step 1:Bond ratings
Bond ratings are assigned after evaluating the issuer's capability, willingness, credit history among various other factors. Higher rating means more credibility and an assurance that the bond issuer will make timely payments. As higher rated bonds are safer, they offer lower returns. A bond with a lower rating is risky for investors and to compensate for the risk taken, they offer a higher return. AAA rated bond has less risk than a BBB rated bond.
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