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What type of bond has the highest risk?
High risk bonds are called junk bonds.
How do insurer determine appropriate premiums for policyholders?
by evaluating risk classifications
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.
Why do junk bonds have high yield?
They also have high risk.
What are the types of risks associated with investing in bonds and how do these two risks affect the pure expectations theory?
There are two major risks associated with investing in bonds 1. Interest rate risk - If the prevailing interest rates in the markets are lower than the rates when the bonds were issued, then the returns on our bonds may be below our expectations and calculations 2. Counterparty risk - This is the risk wherein, the bond issuer defaults on his payments or declares bankruptcy.
What would happen to the risk premiums on corporate bonds if brokerage commissions were lowered in the corporate bond market?
Lower brokerage commissions for corporate bonds would make them more liquid and thus increase their demand, which would lower their risk premium. hope this helps people on their quizzes for econ!
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
Why do junk bonds give a higher return than most corporate bonds?
Yes, but with much higher risk.
Low risk investments?
Low risk investments generally corresponds with low level returns. Two examples of low risk investments would be investment-grade corporate bonds and uninsured municipal bonds.
Why are corporate bond interest rates higher than government bond interest rate?
Corporate Bonds are usually consider high risk.
What are corporate bonds issued for?
A corporate bond is a bond issued by a corporation for the purpose of raising funds and expanding the business. These bonds are usually long-term (i.e. at least one year) and generally offer a higher yield than some other investments. Corporate bonds carry a higher risk of default than other investments such as government bonds, depending on the given corporation and the state of the market.
Do treasury bonds have a high risk?
treasury bonds are risk free bonds.
What causes insurance premiums to increase?
Increased risk.
What is the formula for real risk free rate?
Risk-Free Rate= Norminal Rate Of Return - Risk Premiums
What type of bond has the highest risk?
High risk bonds are called junk bonds.
Are bonds a high risk or low risk?
Low risk
What is the significance of the risk premium?
Risk premium characterizes the increase in required return that an investor must receive for holding a particular asset over another. For example, investors who hold equities require an increased return to that of government debt such as Treasury bonds. The difference between the required rate of return for the overall equity markets and that of treasury bonds is considered a risk premium. Lower risk premiums close to zero indicate that investments may be near perfect substitutes when overall risk is considered.
