A Credit Analyst Is Evaluating the Creditworthiness of Three Companies

question 17

Multiple Choice

A credit analyst is evaluating the creditworthiness of three companies: a construction company, a travel and tourism company, and a beverage company. both the constructionAnd travel and tourism companies are cyclical, whereas the beverage company is non-Cyclical. The construction company has the highest debt level of the three companies. TheHighest credit risk is most likely exhibited by the:

• A) construction company.
• B) beverage company.
• C) travel and tourism company.

---

Definitions:

Standard Deviation

A measure of the dispersion or variability around the mean (average) of a set of data points.

Total Risk

The complete range of risks an investment or project may face, encompassing both systematic (market-wide) and unsystematic (company-specific) risks.

SML

The Security Market Line, a graphical representation of the Capital Asset Pricing Model that plots the expected return of the market at varying levels of systematic or market risk.

Beta

A metric that compares the level of risk and volatility of an individual security or portfolio to that of the general market.