When a bond's rating changes from AA to A and investors did not anticipate the change
A) the coupon rate will fall and the price will rise.
B) both the coupon rate and the price will rise.
C) the coupon rate will stay the same and the price will fall.
D) the yield and the price will rise.

Question

Quizplus · Accepted Answer

The coupon rate of a bond is fixed and does not change after issuance. When a bond's rating is downgraded (e.g., from AA to A), it is perceived as riskier, leading to a decrease in its price as investors demand a higher yield for taking on additional risk.

When a Bond's Rating Changes from AA to a and Investors