Question

explain these risks for bond

-default risk or credit risk

- default premium

- investment grade

- junk bonds

Answer 1

Defauly risk or Credit risk - It is the risk that company or individual faces for the non payment of debt obligation. Borrowers unable to make payment of principal, interest on a timely basis.

Default premium- It is the additional amount that lender receive for the compensate of  non payment of payment or interest on a timley basis. Compensate investor to defaulting th debt amount.

Investment Grade - It is a type of bonds that have low rate of default, company has the good quality earnings and credibility. Its shows the credit worthiness of a company. Ratings BBB or higher by S&P

Junk Bonds -It is a type of bonds that have high default risk, and lower ratings. They provide high coupons in compensate of lower ratings. Ratings BB or lower by S& P.

I hope this clear your doubt.

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