Explain rating (bond)
Bond:
Bond is a kind of debt instrument typically issued by corporations, government organizations and universities is usually utilized for the purpose of raising fund for companies or governmental agencies.
The price of the bond is calculated by adding the present value of the principal amount of bond and present value of the interest payment of the bond. Both the principal amount and interest payments amount are discounted at the present value of the effective interest rate for the bonds.
Rating of bond:
Rating of bond is a "grade" allocated to a bond. These ratings can also be allotted to the issuers of the bond, insurance corporations or other organizations or securities to designate riskiness.
In other words, bond rating is considered as a letter-based credit grading arrangement utilized to evaluate the excellence and creditworthiness of a bond.
Step by step
Solved in 3 steps
