alleryStart learning →Which rating marks the lowest grade still considered investment quality?
AAaa from Moody's or AAA from S&P
BBa from Moody's or BB from S&P
CCaa from Moody's or CCC from S&P
DBaa from Moody's or BBB from S&P
Answer & Solution
Correct answer: D. Baa from Moody's or BBB from S&P
1. Ratings run from prime quality at the top down to bonds in or near default at the bottom.
2. Aaa and AAA are the highest ratings assigned, indicating an extremely strong capacity to pay.
3. Aa and A grades are high-grade investment bonds, very safe but not quite as safe as the top grade.
4. Baa and BBB are medium-grade investment bonds, and they are the lowest of the investment-grade issues.
5. They are seen as lacking protection against adverse economic conditions, which is why they sit at the boundary.
6. Ba, BB and B grades are junk bonds, providing little protection against default and viewed as highly speculative, so they fall below investment grade.
7. Caa, CCC and the grades beneath them are poor-quality bonds, either in default or very close to it.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 16 "Understanding Financial Management and Securities Markets", section 16.6 Securities Markets_
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