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In the United States, there are hundreds of billions of dollars of corporate bonds that are rated BBB-/Baa3. Assume that a recession causes all of
In the United States, there are hundreds of billions of dollars of corporate bonds that are rated BBB-/Baa3. Assume that a recession causes all of these bonds to be suddenly downgraded. What is the overriding characteristic that defines the pre-downgrade investors in the bonds? How will they respond to the rating downgrade? What effect will this have on the price of the bonds and on the debt markets generally? (3 points)
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