Understanding Credit Rating
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Questions and Answers

What is the primary purpose of a credit rating?

  • To communicate the creditworthiness of the issuer through symbols
  • To provide investment recommendations
  • To evaluate the issuer's ability to repay loans (correct)
  • To assess the financial strength of the borrower

    • What is the typical range of an individual's credit score?

  • 200 to 800
  • 300 to 900 (correct)
  • 400 to 1000
  • 100 to 900

    • Which of the following is NOT a characteristic of credit rating mentioned in the text?

  • Provides a specific investment recommendation (correct)
  • Conducted by experts
  • Evaluation of the issuer's ability to repay
  • Data-driven assessment

    • What does a high credit rating imply about the borrower?

    <p>A strong likelihood of the borrower repaying the loan in full and on time</p> Signup and view all the answers

    What is the significance of debt instruments rated below BB?

    <p>They are categorized as speculative or junk bonds</p> Signup and view all the answers

    What is the main difference between credit ratings and credit scores?

    <p>Credit ratings are for businesses and governments, while credit scores are for individuals</p> Signup and view all the answers

    What is the primary purpose of a credit rating?

    <p>To assess a borrower's creditworthiness and ability to repay debts</p> Signup and view all the answers

    Which entities typically assign credit ratings?

    <p>Credit rating agencies like Standard &amp; Poor's and Moody's</p> Signup and view all the answers

    How are credit rating agencies compensated for their services?

    <p>They are compensated by the entity seeking the rating or the issuer of a debt instrument</p> Signup and view all the answers

    What does a higher credit rating generally indicate?

    <p>Lower risk of default</p> Signup and view all the answers

    Which of the following factors are typically considered when assigning a credit rating?

    <p>The borrower's financial performance, debt levels, and economic conditions</p> Signup and view all the answers

    What is the primary purpose of credit ratings in the world of finance?

    <p>To help lenders and investors gauge the risk associated with lending or investing</p> Signup and view all the answers

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