Bond underwriting usually looks at the three C's which include all of the following, EXCEPT:

• A. Contingency
• B. Collateral/Capital
• C. Capability
• D. Character

Answer: (A)

In bond underwriting, the main assessment centers on three factors: Character, Capacity (often called Capability), and Capital. Character looks at the issuer’s integrity and willingness to meet obligations. Capacity or Capability examines the issuer’s ability to generate enough cash flow to service debt. Capital refers to the issuer’s net worth and financial cushion, including any asset value that could support debt. Collateral is sometimes considered as an additional protective element, especially for secured bonds, but it isn’t part of the traditional three Cs. Contingency, while important in risk planning, is not one of the core C’s used to evaluate the issuer’s repayment ability. Therefore, Contingency is the exception.