ECON 3K03 Lecture Notes - Lecture 6: Expected Return, Substitute Good, Fitch Ratings
8 Feb 2015
School
Department
Course
Professor
Document Summary
The economics of money, banking, and financial markets. Risk structure of interest rates: bonds with the same maturity have different interest rates due to: Risk structure of interest rates (cont"d: default risk: probability that the issuer of the bond is unable or unwilling to make interest payments or pay off the face value. Government of canada bonds are considered default free (government can raise taxes: risk premium: the spread between the interest rates on bonds with default risk and the interest rates on (same maturity) canada bonds. Response to an increase in default risk on. Risk structure of interest rates (cont"d: liquidity. The relative ease with which an asset can be converted into cash: cost of selling a bond, number of buyers/sellers in a bond market, income tax considerations. Interest payments on municipal bonds are exempt from federal income taxes. Interest rates on government of canada bonds with different maturities.
