- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 47. Fundamentals of Credit Analysis
- Subject 1. Credit Risk
CFA Practice Question
A decline in an issuer's creditworthiness is called ______.
A. increased default risk
B. downgrade risk
C. credit risk
Explanation: Bond-rating downgrades imply higher risk to the investor and cause the yield spread to widen. The overall cost to the issuer increases on new debt being issued. Oftentimes, the price (yield) in the marketplace will decline (increase) in anticipation of a bond-rating downgrade or announcement.
User Contributed Comments 2
| User | Comment |
|---|---|
| alexchav | Assuming rating agencies do their job correctly! |
| rojaslav | They generally do |