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Describe Why Some Bonds are Risky:
- Default Risk:
- Risk Premium:
- Impact of Economic Conditions
Step by step
Solved in 4 steps
- What is interest rate risk, and how does it relate to callable bonds? Explain using an example of your own choosing.. 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.Does the interest rate on a T-bond include a default risk premium? Explain.
- What is the relationship between interest rate level and bond price? Why must this relationship be true? How has the current rate environment impacted the prices of bonds?How are interest rate risk and reinvestment raterisk related to the maturity risk premium?What is the relationship between interest rates and bond valuations? What are the fundamental assumptions that go into determining the value of a bond?