RATING AGENCIES

In rating agencies, investments are rated by their probability of default or the level of
security per investment. It is inclined that the higher the risk, the higher the return on
investment, and contrary to it is that the lower the risk, the lower the rate of return. The
particular range here is AAA to D; from highest security rating to lowest, however, AAA
has the lowest rate of return and D is likely the riskier but has the highest return on
investment.

Moreover, investments that have guarantees are the least likely to default such as
mortgage bonds. And are also those investments that are handled by the government.

FUNDAMENTAL AND TECHNICAL ANALYSIS

Fundamental and technical analysis are both useful in assessing the future performance
of stock prices. Both are a way of interpreting the possible prices which could provide
an insightful choice for the investor. However, their main distinction is their way of
gathering information on future stock prices.

Fundamental analysis mainly focuses on the news or particular articles that could affect
the investment. For example, the bankruptcy of an organization that issued stocks could
cause a decline in the stock prices of that organization. However, technical analysis
focuses on the previous performance of stocks particularly shown in a graph. For
example, if there’s a decline in the prices of stocks, this could be a chance for investors
to buy more stocks and wait until there is an increase in the price.

BOND VALUATION

The amount of cash by the bond issues is equal to the present value of cash flows. This
is equal to the sum of the principal and interest at present value more likely discounted
at the interest rate.

Here, if the coupon rate is equal to the market rate then it is presented at the face
amount. However, if the market rate is greater than the stated rate, the amount is sold
at a discount which means it is less than the face amount. Moreover, if the market rate
is less than the stated rate, the amount is at premium which denotes that it is more than
the face amount.