Bond rating agencies have invested significant sums of money in an effort to determine which quantitative and non-quantitative factors best predict bond defaults. Furthermore, some of the raters invest time and money to meet privately with corporate personnel to get nonpublic information that is used in assigning the issue's bond rating. In order to recoup those costs, some bond rating agencies have tied their ratings to the purchase of additional services.
Questions:
1 Do you believe that this is an acceptable practice? Defend your position.
2 What is the impact of this practice on the capital markets?
3.What other means can rating agencies use to raise revenue to fund their operations?
CAPM predicts a linear positive relationship between expected returns and betas. The beta measures the systematic risk exposure of a particular asset.
Discussion Questions
1.Discuss evidence that researchers have found to support the CAPM.
2. Theory is nice. However, how is CAPM used in real life?