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What does a credit rating downgrade typically do to a company's borrowing cost?

  1. A Increases it, because lenders demand a higher risk premium
  2. B Decreases it
  3. C Has no effect
  4. D Only affects equity investors
Answer

Increases it, because lenders demand a higher risk premium

A downgrade signals higher default risk, so investors require a greater yield. Downgrades can also trigger covenants and force some funds to sell the bonds.

All Finance MCQs

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