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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.
The wide gap between maturities poses problems in using the on-the-run issues, especially after five years. Some dealers and vendors use selected off-the-run Trea
which critically examines the benefits and risks to a company, of incorporating corporate debt into a portfolio of equity and debt.
Central Bank : The Central Bank is the nation's principal monetary authority responsible for the monetary policy of the country. It regulates money supply and credit, issues cur
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Cash flow analysis helps an analyst to identify certain financial difficulties which cannot be identified using the above ratios. A firm may be shown
I just purchased a stock that would pay the dividends of the first four years as D1 = $0.65, D2 = $0.74, D3 = $0.79, D4 = $0.84. I also told that the dividends would grow continual
Reston, Inc., has asked your corporation, Pruro, Inc., for financial assistance. As a long-time customer of Reston, your firm has decided to give that assistance. The question you
This is again a distinction which becomes important in case of a default. The senior bondholders have to be paid before the subordinate bondholders. This means th
#question how to collect real irr %..
A callable bond is similar to an Option-free bond with a call option from the bondholder. It can be thought of as the sale of a call option by the investor
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