The higher the bond rating of a corporation, the higher the interest rate that is likely to be paid.

Question

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The higher the bond rating of a corporation, the lower the interest rate that is likely to be paid. The difference between an AA and an A rating may mean the corporation will have to pay one-quarter point more interest on the bond issue (perhaps 8.5% rather than 8.25%). Also, lower-rated bonds consistently trade at larger yields than higher quality bonds to provide a risk premium.

The Higher the Bond Rating of a Corporation, the Higher