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Simple English definitions for legal terms
investment-grade rating
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A quick definition of investment-grade rating:
Investment-grade rating: A rating given to a bond by a company like Moody's to show how risky it is to invest in. The rating is one of four symbols (AAA, AA, A, or BAA) and helps investors decide if they want to invest in the bond or not.
A more thorough explanation:
An investment-grade rating is a rating given to a bond by a securities-evaluation agency, such as Moody's, after an appraisal of its quality. The rating is indicated by one of the top four symbols: AAA, AA, A, or BAA. This rating indicates the degree of risk in investing in the bond.
- A bond with an AAA rating is considered to be of the highest quality and has the lowest risk of default.
- A bond with a BAA rating is considered to be of lower quality and has a higher risk of default than a bond with an AAA rating.
These examples illustrate how the investment-grade rating system works. The higher the rating, the lower the risk of default and the more likely the bond is to be a safe investment. The lower the rating, the higher the risk of default and the more cautious an investor should be before investing in the bond.