Private Rating Agencies Evaluate and Then Grade the Default Risk

question 98

Multiple Choice

Private rating agencies evaluate and then grade the default risk of bonds to address which of the following problems?

• A) the government's inability to judge default risks
• B) companies hiding their finances
• C) bondholders not having access to companies' finances
• D) individuals' inability to easily judge default risks
• E) too many investors picking risky bonds for their portfolios

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Definitions:

Net Income

The total earnings of a company after subtracting all expenses and taxes from total revenue.

Annual Amortization

The process of gradually writing off the initial cost of an intangible asset over its useful life on a yearly basis.

Investment Balance

The total value of all investments held by an individual or entity at a given time, including stocks, bonds, and other securities.

Equity Method

An accounting technique used to record investments in other companies when the investing company has significant influence but does not control the investee.