Bond ratings are important because they are:

Multiple Choice

• determined by default and liquidity risk and help investors determine the appropriate price they should pay.

• determined by the firm's default and liquidity risks and determine whether the bond will appeal to taxable or tax-free investors.

• determined by default risk and help firm's decide if a bond should have a call feature.

• determined by default and inflation risk and relate to the likelihood that they bond will be fully subscribed.

• determined by a firm's default risk and will affect the cost of borrowing money.