Economics Bonds Questions
The impact of credit ratings on bond prices is significant. A higher credit rating indicates a lower risk of default, which increases investor confidence in the bond issuer's ability to repay the principal and interest. As a result, bonds with higher credit ratings tend to have higher prices and lower yields, as investors are willing to accept lower returns for the perceived safety. Conversely, bonds with lower credit ratings have lower prices and higher yields, as investors demand higher compensation for the increased risk of default.