9. Bond ratings What are bond ratings and why are they assigned? Bonds are like loans the issuers get from investors. Just as your credit worthiness is evaluated when you apply for a loan, the credit worthiness of the bond also needs to be evaluated. To do this, independent agencies have created a rating system To help investors evaluate bonds, private rating agencies such as Moody's and Standard & Poor's assign grades to designate a bond's quality. Which of the following statements regarding the rating system are correct? Check all that apply, A bond rated Ba by Moody's is comparable to a band rated BB by Standard & Poor's Once a bond receives a rating, it cannot be changed The average yields on Aaa bonds are generally lower than the average yields on Baa bonds. Different rating systems are used for corporate versus municipal bonds. The rating signifies a lower risk of default than a B rating, The following chart shows the distribution of Moody's ratings for municipal bonds between 1970 and 2000. PERCENTAGE OF BONOS IN THIS CATEGORY 60 5442 50 40 29.97% 30 20 11519 10 2.15% 0.00% 0.13 0.02% D Ana . Bas Ba Caa- MOODY'S RATINO You can see that of municipal bonds were considered investment-grade bonds during this period