Which of the following will tend to improve a bond's rating?
I. an improvement in the firm's cash flow
II. an increase in corporate debt
III. an increase in net profits
IV. an increase in net working capital
A) I, II and III only
B) II, III and IV only
C) I, III and IV only
D) I, II, III and IV

Question

Quizplus · Accepted Answer

An improvement in cash flow, an increase in net profits, and an increase in net working capital will increase the bond's ability to make interest payments and repay principal. Therefore, these factors tend to improve a bond's rating. However, an increase in corporate debt will increase the issuer's leverage and risk, which could result in a lower bond rating.

Which of the Following Will Tend to Improve a Bond's