a higher default risk premium indicated investors expect a ( blank ) credit risk on the...

a higher default risk premium indicated investors expect a ( blank ) credit risk on the corporate bonds

the difference between nominal and real return is

Expert Solution

1. Higher

The Default risk premium is the Additional premium that the bond carries according to the risk of the default, If the bond is low rated, then it carries higher default risk premium and in case the bond is Highly rated, the bond will have lower default rating. This is because the company needs to compensate the investor for additional risk they are taking.

2. Inflation

The Difference between the Nominal and the real return is the Inflation, Nominal return takes into account the actual return and return that is lead by inflation into acccount while real account takes only actual return. The difference between the two is of the inflation.

jeff jeffy answered 2 years ago

a higher default risk premium indicates investors expect a credit risk on the corporate bonds a.lower...

a higher default risk premium indicates investors expect a credit risk on the corporate bonds a.lower b.higher c.neutral d.not able to determine

explain these risks for bond -default risk or credit risk - default premium - investment grade...

explain these risks for bond -default risk or credit risk - default premium - investment grade - junk bonds

Why is the default risk higher (and debt/Investors are therefore requiring higher returns as a result)...

Why is the default risk higher (and debt/Investors are therefore requiring higher returns as a result) when I increase the debt/equity Ratio? Thanks a lot in advance.

1. Why is the YTM of bonds with credit risk higher than those of default-free bonds?...

1. Why is the YTM of bonds with credit risk higher than those of default-free bonds? 2. Would you choose corporate bonds over Treasury bonds? why.

1) If investors get a higher expected return, they also expect a) More risk b) About...

1) If investors get a higher expected return, they also expect a) More risk b) About the same risk as with a lower return 2) A method of investment analysis often used by firms not concerned with the timing of payments is the a) Simple rate of return b) Payback c)Modified internal rate return d) Internal rate of return e) Net present value

the higher the debt rating, the greater the risk of default on a financial obligation

e. Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity...

e. Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity risk premium (MRP). Which of these premiums is included when determining the interest rate on (1) short-term U.S. Treasury securities, (2) long-term U.S. Treasury securities, (3) short-term corporate securities, and (4) long-term corporate securities? Explain how the premiums would vary over time and among the different securities.

Credit default

Suppose Apic Bank lends 1 million to Ken and 5 million to Kiptoo. The probability of default in the first year for Ken is 0.2 and for Kiptoo is 0.3. The probability of joint default (both Ken and Kiptoo default) in 1 year is 0.1. The loss given default (LGD) is 40% for Ken and 60% for Kiptoo. What is the expected loss of default in 1 year for the Apic Bank?

Based on this information, what is your estimate of the corporate bond's default risk premium?

2. Bond ratings Rating agencies-such as Standard & Poor's (S&P), Moody's Investor Service, and Fitch Ratings-assign credit ratings to bonds based on both quantitative and qualitative factors. These ratings are considered indicators of the issuer's default risk, which impacts the bond's interest rate and the issuer's cost of debt capital. Based on these ratings, bonds are classified into investment-grade bonds and junk bonds. Which of the following bonds is likely to be classified as a junk bond? A bond with a BBB...

What does a credit rating downgrade imply about credit risk/default risk? How do a firm’s benchmark...

What does a credit rating downgrade imply about credit risk/default risk? How do a firm’s benchmark spreads change when a rating downgrade occurs? a. Related: what does a credit rating upgrade imply about credit risk?

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