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Rating Elements
A rating agency earns its reputation by assessing the client's operational performance, managerial competence, management and organizational set-up, and financial structure. It should be an independent company with its own identity. It should have no government interference. Rating of an instrument does not give any fiduciary status to the credit rating agency. It is desirable that the rating is done by more than one agency for the same kind of instrument. This will attract investors' confidence in the rating symbol given.
Rating Symbols
Since the ratings of the agencies will be used even by lay investors, the outcome of the rating should be delivered in an understandable manner. To facilitate this, rating symbols are provided. These rating symbols must be easily comprehensible to the investors to enable them to take investment decisions. The investor will not have to depend wholly on the broker's advice as the rating symbol gives a clue to the credibility of the issuer. Different rating agencies use different symbols and distinct symbols will be assigned to different securities. The rating symbols, however, will have to be clear and definite without any ambiguity or scope for misinterpretation.
The modified duration is a measure of the sensitivity of a bond's price to interest rate changes; the assumption made here is that the expected cash flow does not
Q. Show the Phase of Traditional Approach? Phase of Traditional Approach: According to the traditional approach the way in which the overall cost of capital and the value of th
You must analyze how the company is financed through equity and debt financing. You will discuss the level of leverage and how it compares to similar companies in the Industry.
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Effect on Stock Valuation Until the 1960s, common stocks were viewed as a good instrument against loss caused by inflation. Also, before 1960, stocks were not providing full he
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