Bond rating & Returns

In 1983, Stewart Mayers raised the question about how market inefficiencies may affect capital structure choices. Pushing these issues a bit further, how do advocates of the “WINDOWS of OPPORTUNITY” story suggest how equity and bond market conditions may affect managers choice of whether and when to issue debt and equity? What sort of historical evidence do we have that stock and bond market conditions do affect decisions about when the firms issue debt or equity in primary markets?

Provide a comprehensive description of the CREDIT RATING system of Standard & Poor and Moody’s. what type of risk are these ratings supposed to represent? Explain the difference between INVESTMENT GRADE DEBT and JUNK BONDS. Of course, lower rated bonds tend to bear higher rates,but describe how the effect of legal and conceptual arrangements in the USA affect the rates paid on these two classes of bonds.




Sample Solution