Fixed Income - Fixed Income Section 2
- Option : B
- Explanation : Credit ratings primarily reflect the probability of default, but not necessarily the severity of loss given default.
- Option : A
- Explanation : Analyzing industry structure, industry fundamentals, and company fundamentals, come under the capacity category of traditional credit analysis.
- Option : B
- Explanation : Goodwill is not included in the value of collateral while analyzing collateral for any issue. Goodwill is generally written down when the company performance is poor.
69. The quality and value of the assets supporting the issuer’s indebtedness is called:
- Option : B
- Explanation : Collateral refers to the quality and value of the assets supporting the issuer’s indebtedness.
- A
Its ability is very limited because companies in industries with those characteristics generally cannot support high debt loads.
- B
Its ability is strong because companies in industries with those characteristics generally have high margins and cash flows that can support significant debt.
- C
The information is insufficient to comment on the company’s debt-taking ability.
- Option : A
- Explanation : Companies in industries with those characteristics typically have low margins and limited cash flow and thus cannot support high debt levels.
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