Why are the bonds with investment grade ratings generally not directly tied to the financial success of the issuing firm?
A) the ability of the firm to make full and timely interest payments is more tenuous
B) the returns are immediately not related to the resources of the firm
C) the firms have the resources to weather possible financial problems
D) the returns are not insulated from the near-term financial performance of the issuer.

Question

Quizplus · Accepted Answer

Investment grade ratings are assigned to bonds that are considered relatively low-risk and financially stable. This means that the firms issuing these bonds are expected to have the resources to weather any financial difficulties that may arise, and therefore the success of the firm is not the primary factor in determining the bond's creditworthiness. Instead, credit rating agencies focus on factors such as the issuer's financial history, cash flows, and ability to make timely interest payments. This makes investment grade bonds more attractive to investors who are seeking a reliable source of income, rather than a high-return investment tied to the financial performance of the issuer.

Why Are the Bonds with Investment Grade Ratings Generally Not