- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 6. Capital Structure
- Subject 4. Optimal Capital Structure
CFA Practice Question
A lower debt rating signifies higher risk to: I. equityholders.
II. debtholders.
Correct Answer: I and II
As the debt rises, the rating agencies tend to lower the ratings of the company's debt to reflect higher credit risk. A lower rating signifies higher risk to both equity and debt capital providers, who demand higher returns.
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