4. Bond ratings Aa Aa Rating agencies, such as Standard & Poor's, Moody's Investor Services, and Fitch Ratings-assign credit ratings to bonds based on both quantitative and qualitative factors. The factors used and their importance to the rating given to an individual bond issue are unique to each rating agency. The bond ratings indicate the issue's, and sometimes the issuer's, credit risk, including the risk of default. The issue's default risk rating affects its interest (coupon) rate, which in turn affects the issuer's cost of debt capital. On the basis of these ratings, bonds are classified along a continuum from the higher-rated investment-grade bonds down to the lower-rated junk bonds. Which of the following bonds is more likely to be classified as an investment-grade bond? A bond with an AA rating, a 5% yield, a sinking fund provision, and a debt ratio of 20% A bond with a B rating, a 10% yield, a call provision, and a debt ratio of 45% Consider the bond described in the prior question. You've heard that the rating agencies have upgraded the bond's rating. The yield on the bond is likely to decrease increase Flash Player MAC 32,0,0,445 Q3 3.34.1 2004-2016 Aplia. All rights reserved. 2013 Cengage Learning except as noted. All rights reserved. Grade It Now Save & Continue