SIE practice questionhardBond ratings
If a municipal issuer’s GO bond rating is downgraded, which effect is most likely?
- AThe state will rescind taxing authority
- BExisting bond prices will rise
- CFuture issues will be oversubscribed
- DThe issuer will pay a higher yield on future GO issues✓ Correct answer
Explanation
Why D — The issuer will pay a higher yield on future GO issues
A downgrade means higher risk, so investors require a higher yield. Bond prices will fall with lower ratings; oversubscription or lost taxing authority is not typical.
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