Bond ratings classify bonds based on: o a. default risk only. o c. liqterest rate, inflation rate, and default risk. interest rate, and default risk. o d. liquidity, market, and default risk. e. default and liquidity risks.

To determine the correct answer regarding what bond ratings classify bonds based on, let's analyze the options provided: 1. **Default Risk**: This is the risk that the bond issuer will be unable to make the required payments (interest or principal) on the bond. 2. **Liquidity Risk**: This refers to the risk that an investor may not be able to sell the bond quickly without incurring a significant loss. 3. **Market Risk**: This is the risk of losses in positions arising from movements in market prices. 4. **Interest Rate Risk**: This is the risk that changes in interest rates will affect the value of the bond. 5. **Inflation Rate**: This refers to the risk that inflation will erode the purchasing power of the bond's future cash flows. Now, let's evaluate the options: - **a. default risk only.**: This is too narrow, as bond ratings consider more than just default risk. - **c. interest rate, inflation rate, and default risk.**: This includes some relevant factors but misses liquidity and market risks. - **d. liquidity, market, and default risk.**: This option covers multiple important risks associated with bonds. - **e. default and liquidity risks.**: This is also too narrow, as it does not consider market and interest rate risks. Based on this analysis, the most comprehensive option that reflects the factors considered in bond ratings is: **d. liquidity, market, and default risk.**