Financial Assets

In: Business and Management

Submitted By mobleypa
Words 280
Pages 2
Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount borrowed), interest rate and maturity/renewal date. Debt securities include government bonds, corporate bonds, CDs, municipal bonds, preferred stock, collateralized securities (such as CDOs, CMOs, GNMAs) and zero-coupon securities. The interest rate on a debt security is largely determined by the perceived repayment ability of the borrower; higher risks of payment default almost always lead to higher interest rates to borrow capital. The four debt securities that are discussed within this paper are as follows: W: A Corporate bond rated AAA X: A Corporate bond rated BBB Y: A Corporate bond rated AAA with a shorter time of maturity than bonds W and X Z: A Corporate bond rates BBB the same time to maturity as bond Y that trades in a more liquid market than bonds W, X, or Y
A grade is given to a bond that indicates their credit quality. Private independent rating services such as Standard & Poor's, Moody's and Fitch provide these evaluations of a bond issuer's financial strength, or it’s the ability to pay a bond's principal and interest in a timely fashion. Bond ratings are expressed as letters ranging from 'AAA', which is the highest grade, to 'C' ("junk"), which is the lowest grade. Different rating services use the same letter grades, but use various combinations of upper- and lower-case letters to differentiate themselves. AAA and AA: High credit-quality investment grade. AA and BBB: Medium credit-quality investment grade. BB, B, CCC, CC, C: Low credit-quality (non-investment grade), or "junk…...

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