CFA Level I · CFA Level I Exam · Credit Risk
Credit ratings issued by a major rating agency are most accurately described as:
Credit ratings are opinions of an issuer's relative creditworthiness. They rank the likelihood of default and sometimes expected loss, but they do not guarantee repayment and do not predict bond prices, so investors should treat them as one input among several.
- Aopinions of an issuer's relative creditworthinessCorrect
- Bguarantees that an issuer will not default
- Cforecasts of the future price of an issuer's bonds
Explanation
A credit rating is an opinion about the relative likelihood of default and, for some agencies, the loss given default. It is not a guarantee of payment and it is not a price forecast. Bonds with high ratings can still default, and prices move with many factors besides credit quality.
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