To critically think about: The controversy created by unsolicited bond ratings. Introduction: A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

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Chapter 6, Problem 13CTCR

Summary Introduction

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

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In 1996, allegations were made against Moody’s that it was issuing ratings on bonds it had not been hired to rate, in order to pressure issuers to pay for their service. How has the increasing availability and use of the internet impacted the ability of stock traders to act unethically?

a). Companies pay rating agencies to rate their bonds, and the costs can be substantial. However, companies are not required to have their bonds rated in the first place; doing so is strictly voluntary. So, why do they do it? b). Do bond ratings agencies have any conflict of interest when they rate bonds? Clearly explain your answer.

The National Credit Rating Agency downgraded the credit rating of Grand Limited by two levels from BB to B+. The credit rating agency was concerned about the company’s ability to refinance portions of its debt. Both B and B+ are considered “junk” bonds and are below the BBB−category, which is the lowest grade that many pension and mutual funds are allowed to hold. a)Discuss whether the credit rating agency is a stakeholder from Grand’s perspective. b)Discuss any bias that Grand might have when it issues its financial statements.

Answer 2

Question

Chapter 6, Problem 13CTCR

Summary Introduction

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

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Answer 3

Question

Chapter 6, Problem 13CTCR

Summary Introduction

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

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Answer 4

Question

Chapter 6, Problem 13CTCR

Summary Introduction

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

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Answer 5

Chapter 6, Problem 13CTCR

Summary Introduction

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

Answer 6

Chapter 6, Problem 13CTCR

Summary Introduction

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

Answer 7

Chapter 6, Problem 13CTCR

Summary Introduction

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

Answer 8

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Answer 11

Ch. 6.1 - What are the cash flows associated with a bond?Ch. 6.1 - What is the general expression for the value of a...Ch. 6.1 - Is it true that the only risk associated with...Ch. 6.2 - Prob. 6.2ACQ Ch. 6.2 - Prob. 6.2BCQ Ch. 6.2 - Prob. 6.2CCQ Ch. 6.3 - What is a junk bond?Ch. 6.3 - What does a bond rating say about the risk of...Ch. 6.4 - Prob. 6.4ACQ Ch. 6.4 - What do you think would be the effect of a put...

To critically think about: The controversy created by unsolicited bond ratings. Introduction: A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

Solution Summary: The author analyzes the controversy created by unsolicited bond ratings.

To critically think about: The controversy created by unsolicited bond ratings.

Introduction:

A bond rating assesses the creditworthiness of the borrowing company. In other words, it is the likeliness of the borrowers’ default in repaying the money.

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Chapter 6 Solutions