Why is Option B wrong?
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Credit Ratings are no guarantee that a bond will not default. Even a AAA/AA rated bond can default.
Now suppose there is AA rated bond. Due to some decisions taken by the management, the company has incurred huge losses and will not be able pay timely coupons. So because of this there is more default risk in the bond and accordingly the investors will demand a higher return for taking higher risk. So the default risk premium component will rise leading to a fall in bond prices because YTM and bond prices are inversely related.
But the rating of the bond is still AA which does not reflect the true picture. The ratings will be revised downwards after all this. So therefore bond prices change before the ratings changes. Credit Ratings operates with a lag.
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