Interest Rate Risk, Default Risk, and Ratings

The two dominant risks

How ratings grade default

The credit spread prices default

Managing the two risks

Which pairing correctly distinguishes interest rate risk from default risk?

Which rating marks the boundary between investment grade and high yield on the Standard and Poor's scale?

Why do bond prices and credit spreads often signal trouble before a rating downgrade arrives?

A five-year corporate bond yields 6 percent while the five-year Treasury yields 4 percent. What is the credit spread, and what does it price?

In a market panic, Treasury prices rise while corporate prices fall. What explains the opposite moves?

Why does rate risk argue for matching bond maturities to the life of the assets being financed?

What three-letter Standard and Poor's rating sits at the very top of the scale? Write the letters.

What two-word term names the gap between a corporate bond's yield and the matched Treasury's yield, pricing default risk? Answer in lowercase.

Name any one of the three major rating agencies named in this lesson. Answer with the last word of its name only if multiword.

What two-word term names the risk that an issuer pays late or not at all? Answer in lowercase.