1.. What ethical issues may arise because the companies that issue bonds pay the rating agencies to rate their bonds? Moody’s Investors Service, Standard &

Poor’s, and Fitch Ratings play a crucial role in the financial markets. These credit-rating agencies evaluate and attach ratings to credit instruments (for example, bonds). Historically, bonds that received higher ratings were almost always repaid, whereas lower-rated, more speculative “junk” bonds experienced much higher default rates. The agencies’ ratings have a direct impact on firms’ costs of raising external capital and investors’ appraisals of fixed-income investments.