Mock 1 - Credit vs Default Risk

As per the explanation, “credit spread risk is correct b/c the major risk is expressed as the concern that the downgrade is not fully reflected in the price of the bonds, which indicates the price will decline due to an increase in the credit spread from the ANTICIPATED DOWNGRADE.” I sorta understand what their saying but I contend that downgrade risk makes more sense. What is everyone elses opinion?

If there is uncertainty regarding downgrading then you might take that as a risk but in the question mentioned that most of the rating agencies were certain that the issue will be downgraded. I guess thats why downgrade risk is absent.

I think they tried too hard to come up with new question. After all, those terms are loose concepts and we shouldn’t be tested that way.

I said downgrade but upon reading the answer I’m guessing that the CFA, in its usual obscure way, was asking: now that it’s been downgraded, what’s the risk to the investor

Ever read a question that you KNOW is one of those that CFAI is trying to trick you. This one was blantantly obvious.

thepinkman Wrote: ------------------------------------------------------- > Ever read a question that you KNOW is one of those > that CFAI is trying to trick you. This one was > blantantly obvious. yes, and then i answered it incorrectly anyway. awesome.

I guess I did too I def said downgrade.