When a Bond's Rating Improves from a to AA

question 11

Multiple Choice

When a bond's rating improves from A to AA

• A)the coupon rate will fall and the price will rise.
• B)both the coupon rate and the price will rise.
• C)both the coupon rate will stay the same and the price will fall.
• D)the coupon rate will stay the same, but the price will rise.

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Definitions:

Noninterest-Bearing Notes

These are promissory notes issued at a discount to face value that do not pay periodic interest, with the return to the investor being the difference between the purchase price and the face value at maturity.

Discounted Note

A promissory note whose face value has been reduced to reflect the effect of interest that it will earn.

GAAP

Generally Accepted Accounting Principles, which are a set of accounting standards and practices used to prepare financial statements.