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Market participants' measure the default risk of an issue on the basis of the credit ratings that the credit rating agencies assign to the issues. Once rating is assigned, the agency continuously monitors the credit quality of the issuer and updates the ratings from time to time. Rating agency is empowered to either upgrade or downgrade the ratings. An unexpected downgrade increases the credit spread and a fall in the bond's price. The risk involved here is the downgrade risk and is closely related to credit spread risk.
Relationship between Bond Price and Time (If Interest Rates are Constant) The bond price changes as the bond moves closer to its maturity. If the bond is quoted
Securitization refers to conversion of illiquid assets to liquid assets by converting longer duration cash flows into shorter duration ones. Securitization denote
A financial consultant obtains different valuations of my company when it discounts the Free Cash Flow (FCF) as opposed to when it uses the Equity Cash Flow. Is this correct? N
What is a sunk cost? Is it relevant while evaluating a proposed capital budgeting project? Explain. A sunk cost is a cash flow which has previously occurred, or that will take
Q. Major proportion of the maximum financing requirement? Whether the credit terms themselves is able to be changed may depend upon the credit terms of competitors when set alo
Bond Price is the purchase value of a bond. It can be priced either at a premium, discount or at par. It is important for the prospective buyer to know how to det
Who owns a credit union? Explain. Credit unions are owned by their members. When credit union members place money in their credit union, they aren't technically "depositing"
Q. What is Maturity? Maturity: The maturity period of the securities should be short, otherwise, the company might suffer losses on account of getting the funds pre-maturely re
What are the advantages and disadvantages of the aggressive working capital financing approach? An aggressive working capital financing approach generally results in a lower cost
A bond investor is always exposed to credit risk. Credit risks can be classified into three types. They are: Default Risk Credit Spread Risk
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