Aproposed corporate bond issue is usually subjected to a creditrisk assessement by credit rating agencies. The results of such anassessement provide a basis for potential investors to makedecisions regarding the proposal.
Some investors consider duration to be useful factor whendeciding whether to invest in corporate bonds. however ,otherinvestors do not consider duration to be that useful and assuch,they rely solely on the work work of credit rating agencies.Such investors consider the information provided by the creditrating agencies to be more useful than duration when choosing thebonds to invest in.
Required
Prepare a report that covers the following
a) A discussion of the factors that contribute to the creditrisk and an explaination of the relationship between credit riskand interest rate risk
b) Identification and explanation of any two(2) approches thatmay be used to assess the degree of credit risk of a proposed bondissue
c) A critical discussion of the usefulness of duration as ameasure of interest rate risk relating to the corpoate bonds
d) An evaluation whether there is a relationship between usingduration and credit ratings when choosing bonds that an investorshould invest in.
