Which bond issue in exhibit 3 has the highest bond rating

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Reference no: EM133487683

Question 1: Bonds investors/portfolio managers confront and strive to manage four types of risk associated with bonds:

interest rate risk - the risk that arises for bond owners from fluctuating interest rates.
credit/default risk - the risk that the issuer (borrower) will not be able to payback principle at maturity or fail to make interest payments. Default is the nonpayment of interest or principle on schedule. When the likelihood of nonpayment increases, the credit spread of a bond increases and the bond price declines. Rating agencies may downgrade a bond's rating as company fundamentals deteriorate.
liquidity risk - the fluctuation of price due to illiquidity, signified by the widening of bid and offer quotes spreads.
reinvestment risk - the risk that a bondholder faces when proceeds from principal or interest payments can only be reinvested at lower yields.

Question 2: As we observed with Boeing, 737 MAX disasters and management capital structure decisions led to a decline in revenues and cashflows. Subsequently, Boeing needed to borrow and increase leverage, while the book value of equity turned negative. Agencies downgraded the company's bond ratings due to perceived increases in default risk.

Answer the following 8 questions, based on chapter 8 readings and the exhibits below:

Which bond issue in Exhibit 3 has the highest bond rating?
Which bond has the longest maturity date?
What was Boeing's highest rating and lowest rating, according to Exhibit 1?
What will it take for Boeing to regain the higher rating?
According to Exhibit 4, what is the probability of default for a Boeing bond maturing in December 2022?
What is the probability of default for the Apple bond maturing 02/23/46?
Which bonds in Exhibit 2 would be considered "speculative grade" or "junk"?
What does a "D" rated bond signify?

Reference no: EM133487683

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