Explain Define liquidity risk and explain how it relates to bonds and bond yields.
1) Explain liquidity risk, default risk, and taxability risk. How does each of these risks affect the yield of a bond? 2) Define what is meant by interest rate risk. Assume the manager of a $100 million portfolio of corporate bonds predicts interest rates will rise in the near future. What adjustments should be made to the portfolio assuming the market has not already adjusted for this prediction? 3) Normally, the Treasury yield curve is upward-sloping. Explain the conditions required...
Define liquidity risk and state how this type of risk can be managed.
Define bonds. Explain how bonds are priced. Be dure to provide an example of a bond.
1. Demonstrate that bond yields and interest rates reflect the effect of six different things. 2. Define the real interest rate and five premiums that investors demand as compensation for risk. 3. Define each of these concepts: expected future inflation, interest rate risk, default risk, taxability and lack of liquidity. 4. Explain how each of these concepts influence investors: expected future inflation, interest rate risk, default risk, taxability and lack of liquidity. (PLEASE DO NOT USE ANSWERS THAT HAVE ALREADY...
Bond ratings classify bonds based on: interest rate, inflation rate, and default risk. liquidity, interest rate, and default risk. liquidity, market, and default risk. default risk only. default and liquidity risks.
Explain liquidity risk, default risk, and taxability risk. How does each of these risks affect the yield of a bond? In you opinion, should an individual or a company stay away from one specific risk compared to the others?
10-year Treasury bond has a yield of 4.3%, and a Billy Bob, Inc. corporate bond yields 7.9%. The maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a .5% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the Billy Bob, Inc. corporate bond? (Answer to the nearest basis point in a % format, x.xx, with no % sign needed.)
Define interest rate risk. Explain the two types of interest rate risk. Explain duration and bond properties and describe how an investor with a given holding period can use duration to reduce interest rate risk.
A. Explain the graph below using risk structure theory of interest rate. Corporate Bond Yields Typically Rise During Times of Economic Stress Compared to U.S. Treasury Bonds (Risk Free) Difference in Percentage Points (Corporate Bond Yield less U.S. Treasury Bond Yield) Low-Grade Corporate Bond Risk Premium homwa Russian Ruble Crisis (1998) gh-Grade Corporate Bond Risk Premium 2001 Recession Apr-95 Apr-96 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Source: Moody's, Merrill Lynch, Federal Reserve Board
If 10-year T-bonds have a yield of 5.2%, 10-year corporate bonds yield 7.5%, the maturity risk premium on all 10-year bonds is 1.1%, and corporate bonds have a 0.2% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond?a. 1.00%b. 1.10%c. 1.20%d. 1.30%e. 1.40%