The Higher the Rating on the Bond,the ________

question 68

Multiple Choice

The higher the rating on the bond,the ________.

• A)higher the interest rate the issuer has to pay
• B)higher the coupon rate to attract investors
• C)lower the coupon rate needed to attract investors
• D)None of the choices are correct; the rating has no effect on the interest rate and does not rate the risk of a bond.

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Definitions:

Predictive Value

The capability of financial information to help users make accurate forecasts about future events or outcomes.

Confirmatory Value

The aspect of relevant financial information that helps users of financial statements confirm or correct prior expectations.

Mispriced Security

A financial security (such as a stock or bond) that is selling for a price significantly different from its intrinsic value.

Faithful Representation

An accounting principle that financial data must be complete, neutral, and free from error, accurately representing the financial reality.