Answer to Question #104586 in Economics for meremi

Question

Design of the optimal for specific cases bond emission (Nuclear station construction vs commercial firm trading French wines): currency, time to maturity, fixed coupon rate vs floating rate vs discount, principal and interest payment, collateral and so on

Answer 1

Usually investors use the bond ratings to determine the level of repayment risk associated with the specific issue and determine a minimum rate of return for the risk involved. If the bonds have high ratings, they are assumed to have low risk and the investor will therefore require a lower yield.