Which of the following statements about credit ratings is most accurate?
A) Credit ratings can migrate over time.
B) Changes in bond credit ratings precede changes in bond prices.
C) Credit ratings are focused on expected loss rather than risk of default.

Question

Quizplus · Accepted Answer

Credit ratings are not static and can migrate over time as the creditworthiness of the issuer or debtor changes. This is why credit ratings agencies regularly review and update their ratings for companies and bonds. Option B is incorrect as changes in bond prices can precede changes in credit ratings, especially if there is market speculation or unexpected news about the issuer. Option C is also incorrect as credit ratings are primarily focused on assessing the risk of default and the likelihood of the issuer or debtor being able to repay their debt obligations.

Which of the Following Statements About Credit Ratings Is Most