Question

In: Finance

If there is an increase in the quick ratio, how would this impact the bond’s rating...

If there is an increase in the quick ratio, how would this impact the bond’s rating and yield to maturity?

Solutions

Expert Solution

Bonds' rating takes into account the liquidity of the firm. Higher the liquidity (current ratio), higher the chances of a good bond rating.

Bond ratings and yields are inversely related. Higher the credit rating, lower the bond yield.

If there is an increase in the quick ratio, the bond rating is likely to be higher, and the YTM will decrease


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