Suppose that when these bonds were issued, Luther received a price of $949.10 for each bond. What is the likely rating that Luther's bonds received?

Question

Quizplus · Accepted Answer

According to the question, the bonds were issued at a discount, meaning the actual face value of each bond was higher than the price at which Luther sold them. A higher yield indicates a lower credit rating, so if Luther sold the bonds at a price below face value, it suggests that the market considered them to be riskier than bonds with an AAA or AA rating. Therefore, the likely rating that Luther's bonds received is BBB.

Suppose That When These Bonds Were Issued, Luther Received a Price