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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.
Explain the significance of the term additional funds needed . When the pro forma balance sheet is finished, total liabilities and total assets and equity will rarely match.
IFRS 3 Business combinations necessitate goodwill on gaining to be calculated at the date control is gained. The second gaining gives ROB a 75% holding and consequently control o
DISCUSS THE APPLICABILITY OF OPERATING CYCLE IN VEGETABLE GROWING.
The Donut Shop, Inc. is planning to add a 2nd Donut Shop by opening a new store across from Webster University. A survey of the area has already been completed at a cost of $150,00
Carr, C., Kolehmainen, K. and Mitchell, F. (2010) ‘Strategic investment decision-making practices: a contextual approach', Management Accounting Research, 21, 167-84. (a) What a
Calculate the price of Winnebago stock (Winnebago has no debt so this is the market value of the firm seperated by the number of common shares outstanding.) from the cashflows you
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Treasury Inflation-Protected Securities (TIPS) are the inflation-indexed bonds, the US Treasury offers. The first offer was made in the year 1997. As the name sug
What are the benefits of Traditional approach Traditional approach had a very narrow perception and was devoid of an integrated conceptual and analytical framework. It had pre
Derivatives - Financial instruments whose value varies with value of an underlying asset (like a stock, BOND, commodity or currency) or index like interest rates. Financial instrum
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