Sunday, July 19, 2009

the corporate bond rate

Another important interest rate is the paid on high-grade (low-risk) corporate bonds. Suppose that a corporation such as International Chemical corporation (ICC) wants to expand its production facilities and must borrow money to do this. one way to raises that money is to borrow it by issuing IOUs in the form of ICC corporate bond. ICC sells these bonds for,say,$1000 apiece and agrees to pay back the principal to the lenders at the end of 10 years.During those years, Icc also promises to pay annual interest on the loan. That annual interest payment, divided by the price of the bond, is the corporate bond rate. Different corporations borrow at different bond rates,depending on the financial soundness (creditworthiness) of the institution backing the rate.
Bond Rating services Risk ratings for corporate(and state and local government)bonds are provided by Moody‘s investors service and standard & poor‘s corporation. The Moody‘s rating consist of nine different classes or grades, rating from Aaa (best quality), to Baa (lower-medium quality), to Caa (poor standing), to C (extremely poor prospect). The ratings are based on detailed studies designed to assess the financial soundness of a particular corporation (or government) to determine how risky its bonds are for investor. more precisely, the studies are designed to assess the ability of a government or corporation to make its interest and principal payments on schedule.Each corporate issue is given a particular rating.
published corporate bond rates are usually given only for the highest-grade bonds-those that are rated Aaa By Moody‘s (orAAA by standard&poor‘s).

No comments: