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Topic_06_E1 - Topic 6 Exercise 1 Bond Ratings and Risk The...

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Topic 6 Exercise 1 Bond Ratings and Risk The corporations that issue bonds to the investing public commonly get the bonds rated by one or more of the independent rating companies. In order for corporations to sell debt securities, the investing public must be able to obtain an independent assessment of the risks associated with corporate bonds. Investors depend on the rating agencies to assess risk and returns on bonds in various risk categories and then assign ratings. There are three major rating agencies for debt securities of domestic firms: Standard and Poor’s, Moody’s and Fitch. Each of the rating services has web pages describing the ratings and key factors that determine the ratings on debt issues. Go to the Standard and Poor’s Rating Criteria for details. The Introduction section of the report describes the rating process and identifies key rating definitions. The Ratios and Ratings section identifies the key ratios used in securing financial ratings and how ratings vary among the different rated securities. Review that material and answer the following questions: 1. Describe the ratings process.
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