What Kind of Risk Is Captured in Bond Ratings? I

question 29

Multiple Choice

What kind of risk is captured in bond ratings? I. liquidity risk
II. interest rate risk
III. default risk

• A)III only
• B)II and III only
• C)I and II only
• D)I, II, and III

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Definitions:

Compounded Monthly

Interest on an investment or loan calculated each month and added to the balance, so that subsequent interest calculations include interest on the previous interest.

Receivable Contract

An agreement where one party has the right to receive a payment or series of payments from another party.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Compounded Monthly

A calculation method where interest is added to the principal balance on a monthly basis, resulting in interest on interest.