A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price. In simple terms, it is the average rate of return a holder can expect from that bond. To Discuss: To go to the website of Standard & Poor's at www.standardandpoors.com . Look for rating services (Find a rating). Find the ratings on bonds of at least 10 companies. Try to choose a sample with a wide range of ratings. Then go to a website such as finance.google.com or finance.yahoo.com and obtain for each firm as many of the financial ration tabulated in Table 10.3 as you can find. What is the relationship between bond rating and these ratios? Can you tell from the sample which of these ratios is the most important determinants of bond rating?

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Chapter 10, Problem 1WM

Summary Introduction

Introduction:

A bond is a security that creates an obligation on the issuer to make specified payments to the holder for a given period of time. The face value of the bond is the amount the holder will receive on maturity along with the coupon rate which is also known as the interest rate of the bond. Yield to maturity is defined as the discount rate that makes the present payments from the bond equal to its price. In simple terms, it is the average rate of return a holder can expect from that bond.

To Discuss:

To go to the website of Standard & Poor's atwww.standardandpoors.com. Look for rating services (Find a rating). Find the ratings on bonds of at least 10 companies. Try to choose a sample with a wide range of ratings. Then go to a website such as finance.google.com or finance.yahoo.com and obtain for each firm as many of the financial ration tabulated in Table 10.3 as you can find. What is the relationship between bond rating and these ratios? Can you tell from the sample which of these ratios is the most important determinants of bond rating?

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