Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Default risk is the risk that arises when the issuer is not able to satisfy the terms and conditions of the obligation with respect to timely payment of interest and repayment of the amount borrowed. If a default occurs, the investor does not lose the entire amount invested as he can recover a certain percentage of the investment. This is called recovery rate. The percentage of a population of bonds that is expected to default is called default rate. Given the default rate and the recovery rate, the estimated expected loss due to a default can be computed.
Default risk is associated with corporate bonds unlike treasury bonds since there is a risk of non-payment of principal and interests either partially or fully due to several factors.
The difference between the investor's expected rate of return and the actual rate of return offered is known as risk premium. This includes the risk associated with a particular bond depending on the likelihood of default either partially or fully. This risk premium depends on the issuer's financial position and fundamentals. Normally, credit rating agencies rate the companies for their issues on the basis of certain factors like capital structure, leverage ratio, earnings ratio, current ratio, the performance of the particular industry, etc., by giving necessary weightages to evolve the rating for the companies. Rating agencies like S&P, Moody's, CRISIL, ICRA, etc., give credit ratings for the issuing company. Companies with higher rating will have lesser default possibility compared to the companies with lesser ratings.
Measuring volatility is very important as it is a critical input in valuation models. In subsequent chapters we will see the importance of assumed volatilit
Q. What is Evaluation of Credit Policy? Evaluation of Credit Policy: - A credit policy is prepared to maintain the investment in receivables at optimum level. Receivable Turnov
X company sells on terms of 2/10, net 40. Gross sales last year were $4.5 million and accounts receivable averaged $ 437,500. Half of X''s customers paid on day 10 and took discoun
At entity level - Inherent risk Integrity of management. Management's experience and knowledge Over reliance on key customers. Unusual pressures on management
Cascade Water Company (CWC) currently has 30 000 shares of common stock outstanding, trading at a price of R42 per share. CWC also has 500 000 bonds outstanding that are currently
Bond valuation would be relatively simple if interest rates exhibit little day-to-day volatility. One could value a bond by discounting each of its cash flows at
Explain why warrants are rarely exercised unless the time to maturity is small? Warrants are hardly ever exercised until the time to expiration is small because the market pric
Hedge funds are short two types of funding options. Describe in detail what these options are. Describe why these options become more valuable during a financial crisis. During
XYZ Energy Solutions plc (XYZ) has spent €12m designing and developing a new generation of domestic air source heat pumps. These new domestic heat pumps can easily be fitted to exi
Consistency - ACCOUNTING postulate that stipulates, except as otherwise noted in FINANCIAL STATEMENT, same accounting procedures and policies have been followed from period to peri
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!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd