1- What is a “credit risk premium”? 2- What are corporate \"junk bonds\" (also k

Question

1- What is a “credit risk premium”?

2- What are corporate "junk bonds" (also known as "high yield corporate bonds" (HYCB)? What ratings are assigned to junk bonds, as opposed to "investment-grade bonds"? What are the major risks of HYCB? Are the prices of HYCB volatile?

3- Do economists now predict that the Federal Reserve will continue to raise rates during the rest of 2018? By how much? (Online research is required of you to answer this question.)

4- What is the typical “default rate” for corporate bonds?

5- What is the typical “recovery rate” for corporate bonds?

Explanation / Answer

Credit risk is the risk that the borrower might default in payment of interest or princiapal amount. Lenders evaluate the credit risk before lending the money and if the risk is more then the premium will be high.

2 Corporate Junk bonds are Fixed income instruments. As opposed to Investment grade bonds the lower credit rating is assigned to Junk bonds as they are having higher chances of default. The major risk of High yield Corporate bonds are they have higher chances of default for interest and principal payments. HYCB bonds prices are highly volatile.

3 Yes the economist predict that lookint at the inflation and economy the rate will continue to rise in 2018

4 Default rate in corporate bonds is quite low and it was 1.47% of all outstanding.

5 Across all bonds the average recovery rate is 37%. Recovery rate is lower in case of corporate bonds as compared to government bonds.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.