SIE practice questionmediumCredit/default risk
A municipal bond’s rating is downgraded due to the city’s deteriorating financial condition. What risk has increased for the bondholder?
- AInterest rate risk
- BLiquidity risk
- CCredit/default risk✓ Correct answer
- DInflation risk
Explanation
Why C — Credit/default risk
A downgrade signals higher credit/default risk, as the issuer may struggle to meet obligations. Interest rate, liquidity, and inflation risk do not explain the downgrade.
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