2.5Investment Foundations · Mission 3
From Credit Rating to Bond Price
Default evidence changes the return investors demand. That required yield flows directly into the price they will pay for the bond.
Your mission
Build a required yield, price the source assessment bond, calculate interest coverage, apply a dated rating table, and deliver a Bond Risk Brief.
20–24 minutesFive guided missionsFinal Bond Risk Brief
Guided bond lab
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OPS Guide
Investors start with a maturity-matched risk-free yield and add compensation for default risk. Build that required return from its two parts.
Assemble the historical source yield stack.
Mission 1 of 5 · Build
Build the required yield
Risk-free yield
The yield on a maturity-matched investment assumed free of default risk.
Default spread
The additional yield investors demand for bearing the issuer’s default risk.
Required yield
The total return investors demand from the risky bond.
Rebuild Damodaran’s historical start-of-2013 BBB example. These values illustrate the relationship and are not current market quotes.
Historical source example · Start of 2013
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Required yield
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Assemble the historical source yield stack.
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