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a. Par Value = Bond’s price is the same as its nominal value.
For example: A bond with nominal value Rp 50 million sold at price 100, the bond’s value is 100 x Rp 50 million = Rp 50
million. b.
At Premium = Bond’s price is higher than its nominal value. For example: A bond with nominal value Rp 50 million sold at price
10β, the bond’s value is 10β x Rp 50 million = Rp 51 million.
c. At discount = Bond’s price is lower than its nominal value.
For example: Bond with nominal value Rp 50 million sold at price 98, the bond’s value is 98 x Rp 50 million = Rp 49 million.
B. Credit Ratings
According to Fitch, credit ratings provide an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred
dividends, repayment of principal, insurance claims or counterparty obligations.
According to SP Credit ratings are forward-looking opinions about credit risk. Standard Poor’s credit ratings express the agency’s opinion
about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time.
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Sovereign credit ratings are an assessment of the creditworthiness of a gover
nment’s ability and willingness to make timely payment of the principal and the interests of its debt Mellios and Blanc, 2006.
Sovereign credit ratings provided by the three major rating agencies: Fitch Ratings, εoody’s and Standard Poors. The three institutions have a
different symbol for determining its grade. Table 2.1 will provide the symbol of credit ratings and its meaning by SP and εoody’s
Table 2.1 Definition of Bond Ratings Classification
εoody’s Standard Poor’s
Description Aaa
AAA The highest rating. Capacity to pay
interest and principal is extremely strong. Aa
AA Very strong capacity to pay interest and
principal. A
A Strong capacity to pay interest and
principal. It
is somewhat
more susceptible to the adverse effect of
changes in circumstances and economic condition rather than higher rated
categories.
Baa BBB
Adequate capacity to pay interest and principal. Changing in circumstances and
economic condition could impact the ability to pay.
Ba BB
Less vulnerable to nonpayment than other speculative issues. However, it
faces major ongoing uncertainties or exposure to adverse business, financial,
or economic conditions.
B, Caa, Ca B, CCC, CC
Extremely speculative
and highly
vulnerable to nonpayment.
