Concept explainers
a.
To determine: The price of the bond with AA rating.
Introduction:
Bond rating is a credit rating which represents the creditworthiness of the both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.
b.
To determine: The principal amount of the bond.
Introduction:
Bond rating is a credit rating which represents the creditworthiness of both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.
c.
To determine: What the rating of the bond must be to sell at par.
Introduction:
Bond rating is a credit rating which represents the creditworthiness of both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.
d.
To determine: The rating of the bond and to analyze if that bond is junk.
Introduction:
Bond rating is a credit rating which represents the creditworthiness of both corporate and government bonds. Creditworthiness represents the ability to pay debt, or risk of getting default on a debt. Therefore, bond rating states the degree of risk associated with a bond. This rating is given by credit rating agencies like S&P, Moody, and so on.
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