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Credit ratings affect the yields on bonds. Based on the scenario described in the following table, determine whether yields will increase or decrease and whether it will be more expensive or less expensive, as compared to other players in the market, for a company to borrow money from the bond market. Cost of Borrowing Money from Impact on Yield Scenario Bond Markets A company's financial health improves. There is an increase in the perceived marketability of a company's bonds, so the liquidity premium decreases. XYZ Co.'s credit rating was downgraded from AA to BBB. A company uses debt to buy another company. Such an event is called a leveraged buyout.

 

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