WVU Credit Ratings Discussion – Description
please read and respond to my 2 classmates post please based off this question.A company’s bond ratings might in concept be similar to your own personal credit ratings. Use an example of how someone’s personal credit rating might affect their financial life — and then translate that to how a bond rating might affect a company’s financial choices. 1st. So bond ratings is a third-party evaluation of looking at a government agency or regular company to determine if they can pay back “interest on fixed income securities and return principal.” (Curry, 2023). Bond ratings help investors to decide if it is worth investing in a company based on if they can make timely payments and return principal. Credit ratings are similar to bond ratings, and the only difference is it is personal. Credit ratings are a qualified assessment determining whether a person can make timely payments on previous financial obligations. Just as we use credit ratings to let an issuer determine if we can make regular payments on a brand new finance car, companies use bond ratings to ensure investors that they will make do on their promise of repayment or return on investor’s money. So there are three independent bond ratings agencies, and all have their grading scale. But they usually use a classic American grading scale of A through D. The top rating on the grading scale would be AAA, which means that the company has a strong capacity to meet financial obligations. Investors would not doubt in their minds that they can trust a company and invest in them. Second to worse is C, which means that a company is highly vulnerable to being unable to pay financial obligations, and recovery is low. And the worst is D, which means payments on financial commitment or of an imputed promise. Any lower ratings, like C or D, will likely not bring any investors to a struggling company that cannot make payments, which means the company has an even worse chance of recovering. A way that bond ratings can affect a Company’s financial choices is if the company is low on finances, they may have to default or claim bankruptcy due to the company not having any money or investors. Or if a company is thriving, a company may expand its horizons with a good amount of investors investing in the company. 2nd A person’s personal credit rating can have a significant impact on their financial life. For example, let’s say someone has a poor credit rating due to a history of late payments or high levels of debt. This low credit rating can make it challenging for them to secure loans or credit cards at favorable interest rates. Lenders will view them as a higher risk borrower and may be hesitant to extend credit or may require higher interest rates to compensate for the perceived risk. As a result, the person with a poor credit rating may find it difficult to obtain a mortgage to purchase a home, secure a car loan, or qualify for a credit card. Similarly, bond ratings play a crucial role in a company’s financial choices. Bond ratings reflect the creditworthiness of a company and the risk associated with investing in its bonds. Just like a personal credit rating, a higher bond rating indicates lower credit risk and allows the company to access capital at lower interest rates. This can significantly reduce borrowing costs and improve the company’s financial position. Conversely, a lower bond rating indicates higher credit risk and can make it challenging for a company to attract investors and raise funds through bond issuances.
The post WVU Credit Ratings Discussion first appeared on .
