If a bond is trading in the market and a credit rating firm lowers the bond's credit rating, we expect the yield on the bond to:
A) increase.
B) decrease.
C) stay the same.

Question

Quizplus · Accepted Answer

When a bond's credit rating is lowered, it is perceived as riskier by investors. To compensate for this increased risk, the bond must offer a higher yield to attract buyers, hence the yield on the bond increases.

If a Bond Is Trading in the Market and a Credit