Which of the following is not a problem with bond ratings?
A) The default experience on bonds is not consistent with bond ratings.
B) The present system of compensating bond ratings firms presents possible conflicts of interest.
C) Bond ratings firms tend to understate the risk associated with asset-backed securities, specifically subprime mortgages.
D) The speed which bond rating agencies reflect a change in a company's condition. Bond ratings tend to follow changes in a company's financial condition instead of predict the changes.

Question

Quizplus · Accepted Answer

Bond ratings are generally consistent with the default experience on bonds, meaning they accurately reflect the likelihood of default. The other options highlight known issues with bond ratings, such as conflicts of interest, understatement of risks, and lagging updates.

Which of the Following Is Not a Problem with Bond