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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.
Financial Management: Financial management is, in its most basic interpretation, the management of costs against revenue. Other management initiatives, such as marketing, are d
Working of FSA The FSA Board is responsible for the management of FSA. It is appointed by the Treasury. It consists of a chairman, a chief executive officer, three managing dir
a.) A bond of Rs. 1000 value carries a coupon rate of 10% and has a maturity period of 6 years. Interest is payable semi-annually. If the required rate of return is 12%, calculate
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What is the Debt Ratio? Describe please.
Goodshape Company has currently, an ordinary share capital of Rs. 2.5 million, consisting of 25,000 shares of Rs. 100 each. The management is planning to raise another Rs. 2 milli
Takeover, Inc. is a Delaware corporation whose only stated purpose is to acquire companies. It has virtually no assets and no employees other than the original founders who contri
Q. Conservative Approach of Financial Management? An exact matching plan may not be followed in practice. A firm may adopt a conservative approach in financing its current and
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