Question

    MNO Ltd got its bond rated by a credit rating agency.

    The rating given to the bond was lsquo;AA-lsquo;. What does this rating indicate?
    A High credit risk rating Correct Answer Incorrect Answer
    B Paying capacity of the issuer is weak Correct Answer Incorrect Answer
    C Investment grade rating Correct Answer Incorrect Answer
    D Speculative rating Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    The credit ratings in India are indicated by the following symbols: AAA highest rating; considered safest with no risk of default AA Strong issuer with very low risk of default A Adequate degree of safety; Low risk of default BBB Moderate repaying capacity; risk of default is moderate BB Risk of default is moderate to high - speculative B High risk; high risk of default C Extremely high risk; very high risk of default D In default The ratings from AA to C also use +/- signs to indicate the relative position within that category. Ratings BBB- and above are called investment grade while below BBB- (i.e. BB+ and below) are called speculative grade.

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