If you are studying for the next ACCA AFM exam, here is an exam pointer.
Corporate bonds are a key part of the exam and can feature as a stand alone topic or within questions on cost of capital, investment appraisal, business valuations and finally corporate reconstructions.
Knowing how to compute the bond:
✅ Valuation
✅ YTM/Yield
✅ Duration
is a given for all ACCA AFM candidates.
However, explaining how the credit rating agencies (S & P, Fitch & Moodys) set the credit rating for corporate debt should not be underestimated.
Make sure you can explain the details behind the 4 criteria they use
✅ Industry Risk
✅ Earnings Protection
✅ Financial Flexibility
✅ Company Management
These are explained in episode 2 of my podcasts “All things ACCA AFM”
The outcome of their assessment is the credit rating which is reflected in the CRP.
BTW – the photo below is my personal credit ratings from two UK agencies.
