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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.
Question 1: You hold a diversified portfolio consisting of a Rs.5,000 investment in each of 20 different common stocks. The portfolio beta is equal to 1.15. You have decided t
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Reforms and Outlook Pension funds in India is an area that is yet to be fully explored compared to those of other economies of the world. The pension reforms are expected to fa
Variance Analysis: In its commonest form variance analysis is the process of comparing budgeted financial performance (or financial goals) against actual financial performance.
What are the major sections of the statement of cash flows? a.Cash flows from Operations b.Cash flows from investing activities c.Cash flows from financing activities
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DISSCUSS THE APPLICABILITY OF AN OPERATING CYCLE IN A VEGETABLE GROWING BUSINESS IN UGANDA?
What is the potential of having agency problems
Specific Cost of Capital When the Cost of every source of capital is individually calculated, it is known as Specific Cost of Capital example Cost of equity, cost of debt, etc
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