Explain relationship between credit risk and interest risk of corporate bonds( discuss in detail)

Expert Solution

Credit risk means that the chances of default of corporate bond issuer because it is not secured against any security. whereas interest risk means the risk of investing in one bond arise due to non investing in second bond or security in other language we can say it is opportunity risk.

A corporate bond raise both type of risk in bonds like credit risk and interest risk. Credit risk arise that the interest and principal will not be paid off to the investor it risk may arise because of lot of reason like weak financial statement , non payment to creditors etc. and second side it also raise interest risk that when they invest in any bond at the same time in market some other security may be paying higher interest therefore the Credit Risk and Interest Risk both goes together in bonds.

I hope this clear your doubt.

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jeff jeffy answered 6 months ago

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