If a financial institution is backed by any government program or indirect guarantee, any bonds purchased must be "rated" at investment grade or better. The rating agency is a third party with no connections with the bond issuer or the bond investor. Which of the following is a true statement. (Points: 4)
The rating agency is a government entity or agency.
The rating agency has a perfect record in determining which bond will fail.
The use of a rating agency is a perfect example of the principal-agent relationship by utilizing independent sources as quality-rating entities.
Only AAA rate bonds are investment grade.
Once rated, a bond will never change rating classification.
All but one of the above are correct.
3 answers