SIE practice questionmediumBond ratings
If an issuer’s bond rating is downgraded from 'A' to 'BBB', what is the likely impact?
- AThe issuer will default
- BBond prices will rise
- CThe bonds will become tax-exempt
- DThe issuer will pay a higher yield on future issues✓ Correct answer
Explanation
Why D — The issuer will pay a higher yield on future issues
A downgrade increases perceived risk, so yields must rise to attract buyers. Bond prices generally fall, and tax status/default are unrelated to ratings.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Debt Securities questions
- Which risk is typically higher in CMOs than traditional bonds?
- A zero-coupon bond is most suitable for which type of investor?
- Which of the following is NOT a characteristic of Treasury bills?
- Which of the following statements is TRUE about Treasury Inflation-Protected Securities (TIPS)?
- A 6% coupon bond is trading at $1,100. What is the current yield?
- Convexity is best described as:
- Which bond will be MOST sensitive to interest rate changes?
- Which bond would have the highest duration?