Which statements regarding bond ratings are true?
I.They include quantitative analysis of financial ratios.
II.They include the effects of special covenants and the collateral provisions of the agreement.
III.They include qualitative analysis of the sensitivity of earnings to changes in the economy and inflation.
IV.They instantaneously change as the factors in the market or in the company change.

Question

Quizplus · Accepted Answer

Statement I is true because bond ratings include quantitative analysis of financial ratios such as debt-to-equity, interest coverage, and cash flow ratios. Statement II is also true because bond ratings consider the effects of special covenants and the collateral provisions of the agreement. Statement III is true because bond ratings include qualitative analysis of the sensitivity of earnings to changes in the economy and inflation. Statement IV is false because bond ratings do not instantaneously change as the factors in the market or in the company change; they are revised periodically based on the issuer's performance and the market conditions.

Which Statements Regarding Bond Ratings Are True