Six months ago an investor purchased a bond that was rated BB. Today the bond is upgraded to a BBB rating. The most likely effect of this upgrade is:
A. a higher spot price.
B. an increase in yield to maturity.
C. increased liquidity risk.
D. increased call risk.
Answer：A
An increase in spot price is the most likely effect of an upgrade. This higher price will lead to a decrease in YTM. Liquidity risk will be lower as the bond will now be classified as an investment grade bond, and therefore would be an allowable investment for an increased number of pension plans and mutual funds. Increased call risk may be possible if the rating upgrade was due to an improved financial situation for the company, but without more information this cannot be determined.