Liquidity risk, Financial Management

Assignment Help:

An investor, who wants to sell a bond even before it reaches its maturity date, would be concerned as to whether he will receive a price that is close to the true value of the issue. True value is indicated by a recent transaction. For example, let us consider that an investor wants to sell bond X; of late, the issue has been trading between Rs.100 and Rs.101. (A selling price between Rs.100 and Rs.101 is considered as the true value of the issue). The investor would expect to sell the bond somewhere between these prices. If the market conditions change, there is always a risk that the investor will not be able to sell at this price. The risk that the investor will have to sell a bond below its true value is referred to as liquidity risk. Liquidity can be measured as the size of the spread between the bid price and the ask price. A narrow bid-ask spread results in a lower liquidity risk while a wider bid-ask spread results in a greater liquidity risk.


Related Discussions:- Liquidity risk

Corporate debt instruments, Corporate debt instruments are the financ...

Corporate debt instruments are the financial obligations of a corporation having priority over the claims of the shareholders (equity or preferred) at the time of

What is accelerated depreciation, Q. What is Accelerated Depreciation? ...

Q. What is Accelerated Depreciation? Accelerated Depreciation - Method which records greater DEPRECIATION than STRAIGHT-LINE DEPRECIATION in the early years and less depreciati

Weighted average, Saven Travel Corporation is considering several investmen...

Saven Travel Corporation is considering several investment opportunities in order to diversify its operations. Mr. Saven, president, is trying to determine the firm''s cost of capi

Calculate the risk premium and probabilities , Johnson & Johnson (JNJ) is t...

Johnson & Johnson (JNJ) is trading at 68.15 (Sep 12th 2012 close). JNJ is a large health care conglomerate. It has done well so far this year (though not as well as the market) and

Maturity risk premium is zero, The actual risk-free rate is 4%. Inflation i...

The actual risk-free rate is 4%. Inflation is likely to be 3% this year and 4% during the next 2 years. We suppose that the maturity risk premium is zero. What is the yield on 2

Role of banks in international trade transactions, Question 1 Internationa...

Question 1 International trade is the economic interaction among different nations involving the exchange of goods and services. Discuss the role of Banks in International Trade T

Stock market indicators, Stock Market indicators: Stock indices can be ...

Stock Market indicators: Stock indices can be organized by weighting the sample of stocks. The stock indicators can be of four types: price-weighted average, volume-weighted av

Coupon curve duration, Market price is used for determining the dura...

Market price is used for determining the duration of a mortgage-backed security in the coupon curve duration. This approach to calculate the duration of mortgage-bac

Evaluate the annual premium for policy, A with-profit whole life assurance ...

A with-profit whole life assurance policy was issued to a life then aged 25 with: • basic (initial) sum assured of S = $100,000; • bonuses added to sum assured at the end of ea

Objective of working capital management, What is the Objectives of Working ...

What is the Objectives of Working Capital Management? Describe please.

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

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!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd