Which of the following corporate debt ratings are ordered in terms of decreasing market interest rate?
Question
Which of the following corporate debt ratings are ordered in terms of decreasing market interest rate?
Solution
To answer your question about corporate debt ratings and their relationship with market interest rates, it's important to understand that generally, the lower the credit rating of a debt, the higher the interest rate that investors require to compensate for the increased risk of default. Therefore, the order of corporate debt ratings in terms of decreasing market interest rate typically follows the inverse order of their credit quality.
Common Corporate Debt Ratings
- Junk Bonds (Non-Investment Grade) - Ratings such as BB, B, CCC, CC, C - Higher interest rates due to higher risk.
- Investment Grade - Ratings such as AAA, AA, A, BBB - Lower interest rates due to lower risk.
Order of Debt Ratings by Decreasing Market Interest Rate
- Lowest Rated (Highest Interest Rate): C, CC, CCC, B, BB
- Investment Grade (Lower Interest Rate): BBB, A, AA, AAA
Summary
Thus, if you have specific ratings listed, you would order them according to this general principle—higher risk (lower ratings) corresponds to higher interest rates and vice versa.
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