1. The interest rate required by investors on a debt security can be expressed by the following equation: Interest rate = RRF + IP + DRP + LP + PRP + CRP. In 1-2 pages, define each term of the equation, and explain how it affects the interest rate.
2. In 1-2 pages, what are the three major rating agencies? What are some criteria that the rating agencies use when assigning ratings? What impact do bond ratings have on the cost of debt to the issuing firm?