Nerco has a bond issue that matures in fifteen years. Recently,
the company’s bond rating has gone from B to Baa. How
would this affect the market price of the bonds?

(a) The requirement is to identify the effect of an increase
in bond rating. Answer (a) is correct because going from a
B rating to a Baa rating is an increase in the bond rating indicative
of lower risk. Therefore, the market value of the bonds should
increase. Answers (b), (c), and (d) are incorrect because the
bond value should increase.