Which of the Following Statements About Bond Rating Agencies Is

question 30

Multiple Choice

Which of the following statements about bond rating agencies is true?

• A) Bonds are rated by an agency of the federal government.
• B) Bonds rated AAA are guaranteed by the company that issues the rating.
• C) During the financial crisis of 2007-2009 it became clear that rating agencies severely underestimated the risks of some issues.
• D) Bond rating agencies are paid by investors and receive no compensation from the bonds' issuer.

---

Definitions:

Underwriter's Compensation

The fee or commission earned by an underwriter for underwriting securities of companies, typically involved in IPOs or issuing new securities.

Green Shoe Provision

An option that allows underwriters of an initial public offering (IPO) to sell additional shares to the public if the demand is higher than expected, to stabilize the stock price.

IPO

Initial Public Offering, the process by which a private company offers shares to the public for the first time.

Private Placement

An offering of securities not made through the public market, but rather directly to a select group of investors or institutions.