Products & RisksQuestion 44 of 125
Credit (default) risk on a corporate bond is best assessed by reviewing:
a.The bond's coupon frequency
b.The number of shares outstanding
c.The dividend payout ratio
d.The issuer's credit rating from a recognized rating agency
Explanation
Credit risk is the possibility that the issuer fails to pay interest or principal. Independent credit ratings from recognized agencies summarize an issuer's ability to meet obligations, with investment-grade ratings indicating lower default risk than high-yield (speculative) ratings, which pay higher coupons to compensate.
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