Financial Assignment

Whenever we are interested in buying a bond from the bond market , the bond 's issuer promises to pay back the principal (or par value ) when the bond matures (Brigham and Houston , 2001 . During this time , the issuer is obliged to pay interest in to compensate the use of money . The interest payment is made on coupon rate which is fixed

There is an inverse relationship between the coupon rate and the bond prices , when

Interest rate increase , leads to rise in income , whereas the price of the bond declines

Interest

rate decrease , leads to decline in income , whereas the price of the bond rises

Also we need to consider that the coupon rate is inversely related to duration because higher coupon rates lead to quicker recovery of the bond 's value , resulting in a shorter duration , relative to lower coupon rates . If coupon rate is greater than the market rate then it is favourable for issuer and if coupon rate is less than the market rate then it is favourable for purchaser (Brigham and Houston , 2001 . The reason behind the variations in the coupon rates of various bonds is the market interest rate company 's performance , time length , and credit worthiness of the issuer . So , all these factors have an implication on the bond yields

2 . Ratings of these bonds are determined on the basis of both qualitative and quantitative factors some of which are listed below

If a company uses conservative accounting policies , its reported earnings will...