Question

A "fallen angel" is a bond that has moved from:

1) being pubLiCly traded to being privately traded
2) being a long-term obligation to being a short-term obligation
3) having a yield-to-maturity in excess of the coupon rate to having a yield-to-maturity that is less than the coupon rate
4) senior status to junior status for liquidation purposes
5) investment grade to speculative grade

Answer 1

A 'fallen angel' is a bond downgraded from investment grade to speculative grade, reflecting an increased risk of default by the issuer.

Step-by-step explanation:

A "fallen angel" refers to a bond originally issued with an investment grade rating that has subsequently been downgraded to speculative grade. This change in status often occurs when the bond's issuer's creditworthiness declines, causing the perceived risk of default to increase and thus lowering the bond's credit rating below investment grade. Although the term may invoke a dramatic image, it is important to understand that a fallen angel is simply a financial term for a specific bond market phenomenon.