Cyberproblem

Bonds and Their Valuation

All bonds have some common characteristics, but they do not always have the same contractual features. Differences in contractual provisions, and in the underlying strength of the companies backing the bonds, lead to major differences in bonds' risks, prices, and expected returns. The risk investors are exposed to in buying a bond is in part gauged by bond rating agencies. The three major bond rating agencies are Moody's, Standard & Poor's, and Fitch's. Bonds are assigned quality ratings that reflect their probability of default. Changes in a firm's bond rating influence its ability to borrow long-term capital and the cost of that capital. Rating agencies review outstanding bonds on a periodic basis, occasionally upgrading or downgrading a bond because of changes in an issuer's circumstances. Visit http://www.moodys.com/ and answer the following questions.

1. From Moody's main page, select "Corporate Finance > Syndicated Loan Ratings". This takes you to a page of ratings news page chronicling Moody's ratings actiions. Click on "Ratings Definitions", should be on the right side of the page. From within the Ratings Definitions section, select "Long Term Ratings: Bonds and Preferred Stock". What do the following ratings mean: Aaa, A, Baa, B, and C?
   
   
2. Occasionally when you see a firm's Moody bond rating, there will be a number after the ratings classification. What do these modifiers signify, and for which issues might you expect to see a numeral modifier?
   
   
3. Briefly describe the different kinds of Issuer Ratings and describe the characteristics of a Aaa rated issuer.
   
   
4. Access Moody's report "The Bond Rating Process In A Changing Environment". Why are investors concerned with issues of credit quality?
   
   
5. What are some of the changes Moody's is considering in order to create a better alignment between credit changes and ratings changes, and what effect would these changes probably have on the volatility of Moody's ratings?