Compare and contrast the difference between Bond Ratings and Bond Rating Agencies and the Bond Market. Provide a real word application and experiential example of Bond Ratings and Bond Rating Agencies.
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Compare and contrast the difference between Bond Ratings and Bond Rating Agencies and the Bond Market. Provide a real word application and experiential example of Bond Ratings and Bond Rating Agencies.
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- Who rates bonds, andwhat are some of the factors the rating agenciesconsider?Explain why yields, investment objectives, risk profiles, knowledge, and timing the market serve as guidelines in buying bonds. Include examples.What is the purpose of bond ratings? What types of risks associated with a bond investment are these ratings designed to measure?
- Explain rating (bond)Do bond ratings adjust immediately to changes in credit quality? Explain.To provide credit rating in the bond market, Bonds are given rankings according to their investment quality, i.e., investment grade and non-investment grade. Which of the following is a measure of the highest investment grade bond? ABC Bbb AAA Ccc- None of the above.
- What are potential problems or limitations of using methods, to estimate the cost of debt, that rely on bond ratings?To understand how bonds work and how they are priced, we have to have an understanding of what determines a bond’s price. One of the most important factors to consider when pricing bonds is the prevailing market rate of interest for bonds of similar risk in terms of duration and quality. In your response to this question, you should highlight the relationship between bond prices and interest rates and indicate what risks are considered when we price bonds. Include at least two citations that support your response.Which of the following are all traditional credit risk enhancement techniques? Group of answer choices B. Collateral, transparency, early termination, bond insurance C. Marking to market, netting, guarantees, reassignment D. Bond insurance, netting, disintermediation, put options A. Put options, netting, bond insurance, derivatives
- Bonds are rated according to default risk. Given the government default-free term structure of interest rates, sketch a diagram of the term structure for an AA rated bond and a BB rated bond. Explain your diagram.Critically discuss five ways in which banks and/or bond holders can manage the credit risk of the loans or bonds they hold as investment assets.What is the bond rating system?