1. Agencies such as Moody’s, Fitch, and Standard & Poor's rate the default risk of various municipal and corporate bonds. While their rating systems are proprietary, it is widely known that they rely on financial ratios as key inputs to their bond ratings. Which financial ratios (list at least two) do you believe would be the most helpful to rate corporate bonds? Why?
2. There is an inverse relationship between interest rate changes and changes in the market price of outstanding bonds. Explain the logic behind this principle. Given this relationship, do you believe it is currently a good time to buy bonds? Why or why not?