Question

QUESTION 7 Fundamental ratings such as those created by rating agencies and Market Implied Risk scores using information such as stock price or bond spreads have different purposes and so their respective performance should be measured in the light of their purposes. True False QUESTIONS A company's bond spread on a 5 year remaining life security was 75 basis points 6 months ago and 50 basis points today. A company's 5 year CDS cost 60 basis points 6 months ago and bass points today. What is true about these market shal? Bond spread indicates increasing risk and CDS indicates reducing credit risk b. Bond spread indicates reducing credit risk and CDS indicates reducing credit risk Bond spread indicates increasing risk and CDS indicates increasing risk Bond spread indicates reducing credit risk and CDS indicates increasing risk

Answer 1

Question 7

True

Fundamental Rating & Market Implied Risk are used to complement each other. Fundamental ratings are used as a source of creditworthiness and are stable. Market Implied Risk are more volatile measures and are used to measure default probability.