Rating means evaluating a company, security, or investment product to determine how well it meets a specific set of objective criteria.
For example, a bond issue may be rated along a spectrum from highest quality investment grade to junk, or from AAA to D.
Rating typically affects the interest rate a fixed-income security must pay to attract investors, forcing lower-rated bond issuers to pay higher rates. Other investors may shun low-rated investments entirely, unwilling to take the risk that the issuer might default. However, ratings are not infallible, even in industries, such as insurance, that are regularly scrutinized.
Rating differs from ranking, which assigns the relative standing of two or more similar items in relation to each other.
- Browse Related Terms: Bond fund, Bond rating, Currency, Duration, Fallen angel, Gold standard, High-yield bond, Investment grade, Junk bond, Moody's Investors Service, Inc., Rating, Rating service, Risk premium
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