Unformatted text preview: AAA Bank investment Aa High Grade AA A Upper Medium A Baa Medium grade BBB Ba BB
B Speculative B Lower
speculative Caa Very speculative CC Ca Near or indefault C Income bond C Lower grade D In default CCC Bond rating Bond An inverse relationship generally exists between the rating and quality of a bond and its interest rate or yield to maturity. That is, highquality (highrated) bonds have lower yields than lowquality (low
rated) bonds. 52
52 Types of Bond Bonds are issued as evidence of a loan. They may be backed with collateral or just the good faith and credit of the borrower. As an educated investor, you need to know the advantages and risks of bonds and whether they are secured or unsecured.
Bonds may be secured by collateral, which is the money or physical assets that a bond issuer (borrower) must give to investors if the bond defaults. Securing bonds ensures that capital will be available to pay the principal on a bond. Corporate bonds and municipal bonds may be secured or unsecured.
Federal government bonds however, are secured and o...
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