What are the risks associated with owning a bond and What happens in stock market and...

What are the risks associated with owning a bond and What happens in stock market and bond market when interest rates rise?

Expert Solution

Risks associated with bonds are
1. Default Risk : There is a chance that issuer might not be able to pay coupon or face value at end of maturity due to business problems. This might cause loss of money. This is default risk.
2. Interest Risk: If the interest rises then the bond price falls and the buyer of the bond will be at loss if it sells before maturity. If the interest rate falls then selling it at maturity might be at loss as price of bond will be highr.
3. Inflation risk: Higher inflation deceases the real return of the bond. The longer the duration of bond higher the inflation risk.
4. Market Risk: There is a chnace that the interest rate and bond prices are affect by the economic conditions of the country.

When interest rate rises stock market falls because the loan rate and bond rates will be higher leading to low capital expenditure.
Increase in interest rate decreases the bond price as discounting factor of coupon and par value increases.

Best of Luck. God Bless
Please Rate Well

jeff jeffy answered 2 years ago

Draw the Bond market. Be sure to label everything. Show what happens before and after bond...

Draw the Bond market. Be sure to label everything. Show what happens before and after bond issuers become more risky. 79. 80. 81. 82. Borrowing? ____________ 83. Interest Rates? ____________ 84. Lending? ____________ Draw the Bond market. Be sure to label everything. Show what happens before and after a consumers have a decrease in the desire to consume. 85. 86. 87. 88. Borrowing? ____________ 89. Interest Rates? ____________ 90. Lending? ____________

What are the main types of risk and to what extent can diversification reduce risks associated with stock portfolios?

What are the risks associated with Verizon Stock currently? I will rate 5 stars. Thank you

Employees who are compensated with restricted stock or stock options face financial risks not associated...

Employees who are compensated with restricted stock or stock options face financial risks not associated with cash compensation. Describe and compare the financial risks of these two types of equity-based compensation.

what are the main Risks associated with Trading Derivatives ?

Check all that apply: A) Among the risks associated with short selling a stock are: -...

Check all that apply: A) Among the risks associated with short selling a stock are: - Default risk: potential unlimited losses when buying back the stock. - Regulatory risk: a ban on short sales can create a surge in the stock price. - Dividend risk: the short seller must provide dividend payments on the shorted stock to the entity from whom the stock has been borrowed. - Systematic risk: the uncertainty inherent to the market as a whole and which...

Discuss shortly the different risks which are associated with foreign exchange market.

What are the advantages and/or disadvantages of owning preferred stock instead of its common stock of...

What are the advantages and/or disadvantages of owning preferred stock instead of its common stock of another company. If a parent company already owns a controlling interest in a company's common stock, why would it invest in any preferred stock of the subsidiary?

Should runners invest in property in Germany? What are some of the risks of owning property in a foreign country?

Here's the context in which you should write your final exam. Bronner's Christmas store is one of the largest in America. Bronners currently has one store located in Frankenmuth, Michigan. Bronner's has decided to open up a second store in Heidelberg Germany. Reflecting on each chapter in our textbook, respond to each of the following questions as though you were hired to be a consultant to Bronner's. 8. Should runners invest in property in Germany? What...

Describe and explain all types of risk in financial market? What risks exist in the bond...

Describe and explain all types of risk in financial market? What risks exist in the bond and share markets? and how these risks affect the bond and share market?

Question