Which of the following is a common method for measuring credit risk?

One of the most effective common methods for measuring credit risk is through the credit ratings of securities. Credit ratings provide a standardized system for evaluating the likelihood of a borrower defaulting on their debt. These ratings are assigned by independent credit rating agencies and are based on various factors, including the issuer's financial health, payment history, and economic conditions. A higher credit rating indicates lower credit risk, while a lower rating suggests a higher level of risk associated with that investment.

Credit ratings help investors make informed decisions regarding the purchase of bonds or other debt instruments. They provide essential insights into not just the likelihood of repayment, but also the overall creditworthiness of issuers, enabling greater clarity in the risk assessment process when investing.

In contrast, net asset value, debt-to-equity ratio, and return on investment, while useful financial metrics, do not specifically measure credit risk. Net asset value pertains to the value of an entity's assets minus its liabilities, which provides insights into asset management but not credit risk. The debt-to-equity ratio is a measure of financial leverage, indicating how much debt a company is using to finance its assets relative to equity, but it doesn't inherently assess the likelihood of default on debt obligations. Similarly, return on investment is focused on profitability