CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

Which statement is false?

A. High-yield issuers in cyclical industries sometimes face a downward-sloping credit spread curve.
B. A high quality issuer with a strong competitive position in a stable industry may face a upward-sloping credit spread curve.
C. In the distressed debt scenarios, the credit spread to a benchmark rate is a useful gauge to assess the credit risk.
Correct Answer: C

When a bond is very likely to default, it often trades close to its recovery value at various maturities; moreover, the credit spread curve is less informative about the relationship between credit risk and maturity.

Issuer- or industry-specific factors, such as the chance of a future leverage-decreasing event, can cause the credit spread curve to flatten or invert.

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