BUS 312 Lecture Notes - Lecture 5: Interest Rate Risk, Credit Risk, Corporate Bond

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 312
• Professor: Martin Thorsten

Document Summary

Securities (e. g. , fhlb) municipal securities (munies) corporate securities - commercial paper (cp) - medium-term notes (mtns) - corporate bonds derivatives (cdo"s, cds"s) . Main features of bonds: issuer us treasury/government states, municipalities, and agencies corporations . Putability: after a certain period, bondholder has the right to demand payment of the loan before maturity. Convertibility: after a certain period, bondholder has the right to exchange the bond for stocks of the issuer. As interest rates change over time, bond prices also change. The value of a bond is thus subject to interest rate risk. Long-term bonds are more price sensitive than short-term bonds to changing interest rates. Other examples of arbitrage opportunities: coupon bonds and discount bonds. Governments: argentina declared in default by s&p in 2014 (previous default. 2001 on us$ 81bn); greece defaults on us$ 138bn in 2012 corporates: lehman brothers, Worldcome, general motors, enron, chrysler, united airlines, caesars entertainment, .