To provide credit rating in the bond market, Bonds are given rankings according to their investment quality, i.e., investment grade and non-investment grade. Which of the following is a measure of the highest investment grade bond? ABC Bbb AAA Ccc- None of the above.
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- To provide credit rating in the bond market, Bonds are given rankings according to their investment quality, i.e., investment grade and non-investment grade. Which of the following is a measure of the highest investment grade bond?
- ABC
- Bbb
- AAA
- Ccc-
- None of the above.
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- Rating agencies—such as Standard & Poor’s (S&P) and Moody’s Investor Service—assign credit ratings to bonds based on both quantitative and qualitative factors. These ratings are considered indicators of the issuer’s default risk, which impacts the bond’s interest rate and the issuer’s cost of debt capital.Based on these ratings, bonds are classified into investment-grade bonds and junk bonds. Which of the following bonds is likely to be classified as an investment-grade bond?A bond with 30% return on capital, total debt to total capital of 15%, and 6% yieldA bond with 10% return on capital, total debt to total capital of 85%, and 13% yieldYou heard that rating agencies have upgraded a bond’s rating. The yield on the bond is likely to , and the bond’s price will .Assume you make the following investments:• A $10,000 investment in a 10-year T-bond that has a yield of 5.00%• A $20,000 investment in a 10-year corporate bond with an AA rating and a yield of 6.50%Based…When a corporate bond receives a rating of "BBB" from a credit rating agency, how is this rating typically classified? O Subprime grade Investment grade O Junk grade O Speculative gradeThe two major bond rating agencies are Moody's and S&P l. Explain how they rate bonds and why it's important?.
- Bonds that are rated less than investment grade by bond-rating agencies is: a. Sovereign bonds b. Corporate bonds c. Junk bonds d. Contingency bondsBonds are rated according to default risk. Given the government default-free term structure of interest rates, sketch a diagram of the term structure for an AA rated bond and a BB rated bond. Explain your diagram.Corporate bonds that receive a ____ rating from credit rating agencies are normally placed at ____ yields. A higher; lower B higher; higher C lower; lower D lower; higher
- Which of the following is correct? a. The terms, “yield rate”, “ stated rate”, and “market rate” are generally interchangeable when referring to interest on bonds. b. The yield or effective interest rate on a bond is equal to the stated rate if the bond premium or discount is amortized by using the straight-line method. c. Interest revenue and expense related to bonds are always computed using the stated rate of interest. d. If a bond is sold at its face amount, the stated and effective interest rates are the same.Default risk on bonds can be evaluated by using:A. financial analysisB. bond ratingsC. estimates of potential losses on bondsD. a and bWhat is the purpose of bond ratings? What types of risks associated with a bond investment are these ratings designed to measure?
- A legal document that details the rights of bondholders and the issuer is called . If the legal document just described includes a sinking fund provision, is the bond considered to have more or less default risk, all else being equal? More default risk Less default risk You can distinguish the various types of bonds by their terms of contract, pledge of collateral, and so on. Identify the type of bond based on each description given in the table that follows: Description Type of Bond These bonds are backed by real estate holdings and equipment, and if a company goes bankrupt, the collateral can be sold off to compensate for the default. These bonds, more so than other collateralized securities, have prior claims over assets. These bonds are not backed by any physical collateral. They are backed by the reputation and creditworthiness of the issuing company. These bonds are considered the riskiest of all corporate bonds and thus…Determinants of bond ratings include the following: Qualitative factors like the company's relationship with its labor force and potential regulatory changes. Financial Ratios The contract terms of the bond. All of the above. None of the above.What exactly does the coupon rate on a bond relate to? What range of S&P credit ratings are assigned to investment grade bonds?