How Is the Relationship Between a Bond's Credit Rating and Its

question 35

Multiple Choice

How is the relationship between a bond's credit rating and its interest rate best defined?

• A) Inverse relationship
• B) Direct relationship
• C) Unrelated
• D) Logarithmic

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Definitions:

Risk Aversion

Risk aversion is a preference for avoiding loss over making a gain, characterizing individuals or entities that prefer certainty to uncertainty in investment decisions.

Equilibrium

An equilibrium state in the market where demand equals supply, resulting in steady prices.

Independent Events

In probability theory, events that do not affect the occurrence of one another.

Insurance Premiums

Payments made to an insurance company in exchange for coverage, typically paid on a monthly or annual basis.