ECON282 Lecture Notes - Lecture 12: Credit Risk, Yield Curve
6 Feb 2018
School
Department
Course
Professor
Document Summary
A valuable way to think about asset is present value. The price of a bond should be equal to present value or coupons. When present value drops, bond price also drops. We focus on one interest rate but essentially, we"re looking at all the interest rates. Bonds with the exact same maturity but different company. Gov"t of canada bond interest rates are low. Gov"t of canada has never been bankrupt so you are almost guaranteed to get money back unlike other companies (50-50 chance of getting money back) A lot of companies sell bonds before maturity. Bonds that have low liquidity are hard to sell. Bonds that have high default risk are also hard to sell. Graph for term structure of bonds is the yield curve\ Tells us return on a 2 year bond should equal a 1 year bond.
