First determine the difference between the AAA and CCC spreads. This indicates how much more of a yield is required on CCC-rated bonds versus AAA-rated bonds. Next, determine the difference between AAA and BBB spreads. Then determine the difference between BBB and CCC spreads. Is thedifference larger between the AAA and BBB or the BBB and CCC spreads? What does this tell you about the perceived risk of the bonds in these rating categories? (Only a few sentences long)
BBB spreads have a slightly higher risk of default than AAA spreads because BBB Bonds have higher yields. They are therefore in higher demand by investors. When an economy is shaky, investors may prefer an AAA spread. However, BBB can decline more quickly than AAA during certain situations. CCC on the other hand have much higher risks but the payout could be beneficial for investors. The largest difference exists between the AAA and CCC.
Excerpt from file: FirstdeterminethedifferencebetweentheAAAandCCCspreads.Thisindicateshowmuch moreofayieldisrequiredonCCCratedbondsversusAAAratedbonds.Next,determinethe differencebetweenAAAandBBBspreads.ThendeterminethedifferencebetweenBBBand CCCspreads.IsthedifferencelargerbetweentheAAAandBBBortheBBBandCCC...
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