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Aleja Aleja
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6 years ago
A bond’s yield depends on several factors; one of those factors is risk. So, how do you assess a bond’s risk? For bonds, it is quite simple. Prior to a bond being issued, external rating agencies assign a credit rating that helps the investment banker “price” the issue, or set the coupon rate. Coupon bonds are typically “priced” to sell at par value at issuance. However, over time, the market rate of interest may change, or the risk of the company issuing the bond may change. When either of those factors change, the price of the bond will change and therefore change the yield to maturity of that bond for any investor buying the bond on the secondary market.
Go to the following site and look at bond ratings.

http://www.bondsonline.com/Bond_Ratings_Definitions.php

1. What is Standard & Poor’s highest bond rating and how does it impact coupon rates and the bond’s selling price?

2.  What would happen to the price of that bond if market rates of interest increased over the next two years?

3. How much would new issue bonds sell for with AAA ratings after interest rates increased?
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shangshangshangshang
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Aleja Author
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6 years ago
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