Bond Rating Systems

question 51

Multiple Choice

Bond rating systems

• A) report levels of risk relative to other bonds.
• B) have little relationship to the actual risk.
• C) reclassify all bonds when the economy changes.
• D) maintain a fixed yield spread between rating levels.

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Definitions:

Least Risky

Describes an option or decision that involves the lowest level of risk compared to alternatives.

Expected Income

The amount of money an individual anticipates earning over a specified future period, often based on current income and future prospects.

Expected Value

Probability-weighted average of the payoffs associated with all possible outcomes.

Expected Returns

The average return an investor anticipates receiving from an investment, taking into account the probability of different outcomes.