Fundamentals of Financial Management, Third Edition

APPENDIX A

Rating of Bonds

Bond rating means assigning of quality to the bonds. Rating is helpful in the marketability of the bonds and this in turn ensures the fund-raising ability of the firms. Rating also helps protect the interests of the investors insofar as they prefer to invest only in high-rated bonds, and do not fall prey to default risk. Sometimes investors do invest in low-rated bonds if the rate of return is high. Junk bonds are an apposite example of high-risk/high-yield bonds.

One can find bond rating institutions spread all over the globe. The rating institutions in the USA, Mood Investors Service, Standard and Poor’s Corporation and Fitch Investors Service are well known throughout the world. In India, the Credit Rating and Information ...