Series 7 Exam Question 206: Answer and Explanation

Question: 206

Which of the following is rated by most securities rating services?

• A. Market risk
• B. Investment risk
• C. Quantity
• D. Quality

Correct Answer: D

Explanation:

D. The expression "quality over quantity" applies here. Rating services are concerned with quality, defined as the issuer's (or guarantor's) default risk or ability to pay interest and principal on time. The two biggest rating services are Moody's and Standard & Poor's. The highest ratings for these rating services are Aaa and AAA, respectively.