CFA Level I · CFA Level I Exam · Credit Risk
In traditional credit analysis, the "four Cs" framework is used by analysts to assess a borrower. Which of the following is most likely one of the four Cs?
Capacity is one of the four Cs of traditional credit analysis, together with collateral, covenants and character. It measures the borrower's ability to service debt from its cash flows. Convexity and coupon are bond features and are not part of the framework.
- AConvexity
- BCapacityCorrect
- CCoupon
Explanation
The four Cs are capacity, collateral, covenants and character. Capacity is the borrower's ability to make timely debt payments from operating cash flow. Convexity and coupon describe bond price and cash flow features, not the credit analysis framework.
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