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Why junk bonds pay a higher interest rate than government bonds of similar maturity?
Interest rates increase as perceived risk increases. Government bonds have virtually no risk. Junk bonds are so called because they carry a high risk of default.
What is the order of treasury bonds junk bonds and corporate bonds from lowest to highest risk of default?
-U.S. Treasury bonds -Corporate bonds -Junk bonds
Do bonds have a fixed maturity?
no
Why would a person invest in junk bonds-?
"Junk" bonds pay a higher interest rate than high-quality bonds, in order to compensate for the risk of default. junk bonds can pay very high interest rates (gradpoint)
What happens when a yield to maturity is less than the yield to call?
The issuer will call the bonds and issue new bonds to the maturity date.
How long does it take for bonds to reach full maturity?
Different bonds have different maturity dates. Additionally, there are different type of bonds, some provide interest based on the face value, and some provide the face value upon maturity.
When the corporation issuing the bonds has the right to repurchase the bonds prior to the maturity date for a specific price the bonds are?
callable bonds
What percentage of junk bonds default?
30?
What bonds can be recalled before its maturity date?
Bonds that can be recalled before their maturity date are typically known as callable bonds. These bonds allow the issuer to redeem them at a predetermined price before the maturity date, usually during a specified call period. Callable bonds often offer higher yields to compensate investors for the risk of early redemption. Other types, like putable bonds, allow investors to sell the bond back to the issuer before maturity under certain conditions.
What type of bond has the highest risk?
High risk bonds are called junk bonds.
What are the risks and benefits of buying junk bonds?
One advantage of purchasing junk bonds is it allows one to diversify investments over a larger group of different assets. The biggest benefit is they carry a high yield. However, junk bonds are also very high risk.
If 10-year T-bonds have a yield of 6.2 10-year corporate bonds yield 7.9 the maturity risk premium on all 10-year bonds is 1.3 and corporate bonds have a 0.4 liquidity premium versus a zero liquidity?
To find the maturity risk premium on corporate bonds, we can use the following formula: Corporate bond yield = T-bond yield + Maturity risk premium + Liquidity premium. Given the yields, we have: 7.9% = 6.2% + 1.3% + 0.4%. This indicates that the maturity risk premium accounts for the difference in yields between T-bonds and corporate bonds, confirming that the corporate bonds include both the maturity risk premium and the liquidity premium.
