Discussion Question 3:
Let discuss bonds, either corporate or municipal. Recently, several companies have had their bond rating lowered by the major rating agencies due to accounting irregularities. What impact does a bond rating have on a bonds value or Yield to Maturity? What are some factors that affect the value of a corporate or municipal bond? Why is it necessary to value a bond in terms of today's dollars? And what is the impact of an increase in the prevailing interest rate on the valuation of a bond?
<br>A bond rating has a significant impact on value. The purpose of these rating companies is to assess how financially sound the corporation or municipality is. An investor will want to know about the likelihood that they will not be repaid on their loan. The poorer the rating, the higher the level of risk. As a result, the investor will command a higher yield to compensate for that additional risk.
<br>Some factors include: the ability of the corporation or ...
This question involves the fundamentals of Managerial Finance