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Bond ratings predict the probability of default.
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- Bond ratings primarily reflect which of the following? Reinvestment risk, Default risk , Interest rate risk, Yield curve risk. What is interest rate risk and what is the relation between interest rate risk and callable bonds. Explain with the help of an example of your own choice.In the bond market, provide a list of the variables that influence the equilibrium interest rate and explain why they are important.
- How do bond duration and bond convexity work together to assess the interest rate risk of a bond portfolio?Money duration is the appropriate measure of interest rate risk for bonds with embedded options. Select one: True FalseBond investors prefer short maturities. This is based on: a.default risk b.liquidity risk c.maturity preference d.expectations theory
- What is interest rate risk, and how does it relate to callable bonds? Explain using an example of your own choosing.How does bond duration and bond convexity complement each other in measuring a bond portfolio’s interest rate risk?With regard to interest rate sensitivity measures and bonds: Group of answer choices C. Convexity attempts to capture the sensitivity of a bond’s duration to changes in interest rates. D. Both B & C B. Duration is related to yield approximation and convexity is related to price. A. Convexity is related to yield approximation and duration is related to price
- How would bond convexity be used as a risk-management tool in managing a bond portfolio? How does bond duration and bond convexity complement each other in measuring a bond portfolio’s interest rate risk?Does the interest rate on a T-bond include a default risk premium? Explain.Justify and give your comment based on the following statements: (ii) Bond price is positively correlated with the market interest rate.