When comparing two financial instruments which are junk bond and hedge fund, I think hedge fund is more risky than Junk bond. The reason is very simple. Contrary to hedge fund, people already know the risk of the junk bond as you see below chart. And, investor tries to investor their fund to junk bond for better return even though they already know its risk. . Junk bond is simply high-yield bonds with higher risk. There is Bond rating that measures the perceived risk that the bonds’ issuers will not make interest payments or repay the principal at maturity. Usually, the junk bond’s rating is BBB or below Baa. The junk bond can be rated Baa (BB) and D(Default). Bond rating Moody’s Standard and Poor’s Grade Risk Aaa AAA INVESTMENT Lowest Risk Aa AA INVESTMENT Low Risk A A INVESTMENT Low Risk Baa BBB INVESTMENT Medium Risk Ba/B BB/B JUNK High risk Caa/Ca/C CCC/CC/C JUNK Highest Risk c D JUNK In Default ( http://www.investopedia.com/articles/02/052202.asp ) Hedge fund The number of hedge fund has been increasing 3,873 by 2000 and to 9,462 today. Its number
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This note was uploaded on 10/20/2011 for the course FIN 500 taught by Professor Yi during the Spring '10 term at CSU Dominguez Hills.