Karyn wants to evaluate some bonds she is contemplating buying. In order to adequately evaluate them, she should check the bond yields, read the bond quotes in a paper, and check the bond ratings.
What are Bond ratings?
A bond rating is a means to assess a bond's creditworthiness, which relates to how much an issuer will pay to borrow money. In these ratings, bonds are often given a letter grade indicating their credit worthiness.
Bonds classified as investment grade received ratings of "AAA" to "BBB-" from Standard & Poor's and "Aaa" to "Baa3" from Moody's. Lower ratings apply to junk bonds.
All other things being equal, a bond's interest rate will be lower the higher its grade.
Bond ratings play a critical role in influencing investors' perceptions of the value and stability of a given bond. As a result, these ratings have a significant impact on bond pricing, interest rates, and investor interest.
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