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Question: If a bond’s rating declines, the interest rate demanded by investors, called the required return,...

Question

Question: If a bond’s rating declines, the interest rate demanded by investors, called the required return,...
Question: If a bond’s rating declines, the interest rate demanded by investors, called the required return, also decreases. (True or false?)

Answers

If a bond’s rating declines, the interest rate demanded by investors, called the required return, also decreases.

- False

If bond's rating declines then it becomes less attractive. Thus, it is inversely proportional to interest rate

Thus, if a bond’s rating declines then required rate increases.

Thus, given statement is incorrect.


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