Credit spread risk, Financial Management

Assignment Help:

A credit spread refers to the difference in interest rate between a corporate bond and a comparable maturity government bond. Suppose interest rate on a five-year corporate bond is 6 percent and that on a five-year government bond is 5 percent. The interest on corporate bond consists of a risk-free rate of 5 percent plus a credit spread of 1 percent. Credit spread is the compensation paid to investors for the risk of default in interest and principal payments. In other words, the yield of the bond comprises two components:

i) The yield on a similar default-free or government bond issue and

ii) A premium above that for the default risk associated with the bond.

The part of the risk premium attributed to default risk is called the credit spread. If the credit spread of a non-treasury bond will increase, the market price of the bond will decline. Credit spread risk can be defined as the risk wherein an issuer's debt obligation will decline due to an increase in the credit spread.


Related Discussions:- Credit spread risk

Firms operation and financing decision, Q. Firms operation and financing de...

Q. Firms operation and financing decision? Firms operation and financing decision risks or the variability of returns also results for the decision make within the company. Ris

Determine the objectives of the firm, Determine the Objectives of the Firm ...

Determine the Objectives of the Firm Objectives of the Firm - Profit Maximisation and Wealth Maximisation To put it simply, we may say that goal of any business is to max

#title.OPERATING CYCLE, DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEG...

DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEGETABLE GROWING.

Currency, You have the following limited information upon which to base you...

You have the following limited information upon which to base your decision as to which is the better of two alternative funding arrangements: ? Alternative 1 is to arrange funding

Leverage, evaluate the importance of leverage in a small scale company

evaluate the importance of leverage in a small scale company

Investment banker, The Role of Merchant Banker The issuer appoints the ...

The Role of Merchant Banker The issuer appoints the Merchant Banker (or Investment Banker) to undertake the issue activity. A Merchant Banker performs multiple functions during

Economic order quantity, annual uasage of stock 100,000units carrying ...

annual uasage of stock 100,000units carrying cost per unit of stock RM2 order cost RM250 question there is a constraint arising from the floor space of the

Does high operating leverage always mean high business risk, Does high oper...

Does high operating leverage always mean high business risk?  Explain. High operating leverage doesn't always mean high business risk.  If the company's sales are quite steady

Estimate the npv of the project?, Wing Yin Tsui, CEO of Lian Huang & Wong B...

Wing Yin Tsui, CEO of Lian Huang & Wong Bin Dean Hwang Manufacturing Limited is considering a four year project. The project requires an initial investment of $10,000,000 to buy ne

Beta, what is the value of beta for this fund ? If the benchmark index for ...

what is the value of beta for this fund ? If the benchmark index for this mutual fund increased by 11.00% during the period covered by beta measure, what was the rate of return for

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd