[Related to the Apply the Concept on page 187] According to an article by Reuters News Agency, in November 2016, Fitch Ratings cut its rating on McDonald’s bonds from BBB+ to BBB. a. What is Fitch’s...

[Related to the Apply the Concept on page 187] According to an article by Reuters News Agency, in November

2016, Fitch Ratings cut its rating on McDonald’s bonds

from BBB+ to BBB.

a. What is Fitch’s top bond rating? Under what circumstances would Fitch, or the other bond rating agencies,

be likely to cut the rating on a firm’s bonds?

b. What will be the likely result of this rating’s cut for the

interest rate McDonald’s will have to pay when it sells

new bonds? Briefly explain.

Source: “Fitch Downgrades McDonald’s IDR to ‘BBB’; Outlook Stable,” reuters.com, November 7, 2016.