5.1 Introduction

Credit analysis has a crucial function in the debt capital markets-efficiently allocating capital by properly assessing credit risk, pricing it accordingly, and repricing it as risks change.

Credit analysis helps to answer the following questions:

• How do fixed-income investors determine the riskiness of that debt?
• How do they decide what they need to earn as compensation for that risk?

Lesson Wrap-Up

This lesson should leave you able to explain the introduction in a fixed-income context and connect it to the decisions made by issuers, investors, or analysts.

Review Prompts

1. Explain introduction in your own words.
2. State one exam-style risk, valuation, or market implication of the introduction.