Question

Suppose one company that has credit-rating CCC issued bond. Should you buy this bond and why? How this credit rating influence interest rate?

Answer 1

A company that issued a bond with a credit rating of CCC has a huge amount of risk. CCC rated bonds are called junk bonds/ high yield bonds. They have a higher chance of default and hence demand a higher interest rate by investors to buy this bond.

If you are a risk taking investor you should buy the CCC rated bond. You should buy this bond because it has a high return expectation considering the higher risk involved. Because of the lower credit rating, the interest rates increase as investors ask for more return for taking higher risk as compared to other higher rated bonds.

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