11 - What's a simple way to assess and compare the default...

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Unformatted text preview: What's a simple way to assess and compare the default risk of publicly traded bonds? Describe how a bond's interest rate risk is related to its maturity. Bonds are debt instruments used by business and government to raise large sums of money, often from a diverse group of lenders. Treasury bonds, sometimes referred to as government bonds, are issued by the Federal government and are not exposed to default risk. Corporate bonds are issued by corporations and are exposed to default risk. Different corporate bonds have different levels of default risk, depending on the issuing company's characteristics and on the terms of the specific bond. The interest rates paid by bonds go up as the risk rises. If a bond offers an interest rate that is way off the market, it is because there is a high degree of risk involved. Another factor that correlates to default is the bonds length to maturity. The longer a bond hangs out there the higher the risk of default. The most important indicator of a bonds potential to default is its ranking by the risk of default....
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This note was uploaded on 10/15/2011 for the course FIN 550 taught by Professor Smith during the Spring '11 term at Berklee.

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11 - What's a simple way to assess and compare the default...

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