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 Aaa by Moody's is comparable to a bond rated A by Standard & Poor's.

The rating $B$ signifies a lower risk of default than a $C$ rating does.

The average yields on Aaa bonds are generally lower than the average yields on Baa bonds.

The term junk bond means that the interest payments are not being met.

This same rating system is applied to both municipal and corporate bonds.