Credit rating scale
AAA to BBB− is investment grade, BB+ to CCC− is non-investment or junk grade, and D is default; the short-term scale runs A1+ to D.
This one is not written up yet
The definition above is the short version. A full explanation — how it works, a worked example and the exam traps — is still being written. In the meantime the chapter below covers it in context.
Written up from the same chapter
- Accrued interestCoupon earned from the last coupon date up to settlement, paid by the buyer to the seller on top of the negotiated price, because the issuer will pay the whole coupon to whoever holds the bond next.
- Bond Equivalent YieldThe annualised simple-interest return on a money market instrument, computed on price and a 365-day year, so instruments of different maturities can be compared on one basis.
- ConvexityThe curvature of the price-yield relationship — the correction duration misses, because duration is a straight line and the true relationship bends.
- Credit riskThe risk that a borrower fails to meet its obligations on a debt instrument — the risk credit rating agencies exist to grade, and the one that triggers a segregated portfolio in a mutual fund.
- Credit spreadThe extra yield a non-government borrower must pay over a government security of the same tenor — the market price of credit risk, quoted as an add-on over the risk-free rate.
- Current yieldA bond's annual coupon in rupees divided by its current market price — the cash income the bond throws off this year, ignoring any gain or loss at redemption.
Where this is taught
Free preparation for NISM Series V-D← All terms