Bond or debt securities pay a stated rate of interest. This rate of interest is dependent on the risk associated with the investment. Also, bond prices change when the risks associated with those bonds change.Standard & Poor”sprovides ratings for companies that issue debt securities.
(a)Explain the meaning of an “A” rating. Explain the meaning of a “C” rating.
(b)What types of things can cause a change in a company”s credit rating?
(c)Explain the relationship between a company”s credit rating and the merit of an investment in that company”s bonds.