Weighted Average Credit Rating

AAA

DEFINITION of 'Weighted Average Credit Rating'

The weighted average of all the bond credit ratings in a bond fund. The measure gives investors an idea of how risky a fund's bonds are overall. The lower the weighted average credit rating, the riskier the bond fund. The weighted average credit rating is expressed as a regular letter rating (AAA, BBB, CCC).

INVESTOPEDIA EXPLAINS 'Weighted Average Credit Rating'

To arrive at the weighted average credit rating, the calculation starts with dividing the value of each bond in the fund by the total value of the fund. This gives the individual bond weights. The weight of a bond in the fund determines how much that bond influences the weighted average credit rating. For example, if a bond fund has 95% AAA government bonds and 5% junk bonds, the bond fund would still have a weighted average credit rating of AAA.

RELATED TERMS
  1. Japan Credit Rating Agency - JCR

    One of the key credit rating agencies in Japan. JCR provides ...
  2. Credit Risk

    The risk of loss of principal or loss of a financial reward stemming ...
  3. Investment Grade

    A rating that indicates that a municipal or corporate bond has ...
  4. Junk Bond

    A colloquial term for a high-yield or non-investment grade bond. ...
  5. Bond Rating

    A grade given to bonds that indicates their credit quality. Private ...
  6. Bond Fund

    A fund invested primarily in bonds and other debt instruments. ...
Related Articles
  1. Evaluating Bond Funds: Keeping It Simple
    Mutual Funds & ETFs

    Evaluating Bond Funds: Keeping It Simple

  2. Advanced Bond Concepts
    Bonds & Fixed Income

    Advanced Bond Concepts

  3. Bond Basics Tutorial
    Retirement

    Bond Basics Tutorial

  4. Are Equity-Indexed Annuities Right For ...
    Savings

    Are Equity-Indexed Annuities Right For ...

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center