1.Difference between the current yields on different bonds can be explained by their relative riskiness and different terms to maturity. Discuss.
2. Although the market price of long term bond is much more sensitive to changes in market interest rate than the market price of short term bonds, it is not obvious that an individual wishing to invest for a fixed period should choose to invest in a series of shorter-terms bonds. Discuss the rationale for this statement.© BrainMass Inc. brainmass.com June 3, 2020, 7:14 pm ad1c9bdddf
. Difference between the current yields on different bonds can be explained by their relative riskiness and different terms to maturity. Discuss.
Bond is a fixed income (debt) instrument issued for a period of more than one year with the purpose of raising capital. The central or state government, corporations and similar institutions sell bonds. A bond is generally a promise to repay the principal along with fixed rate of interest on a specified date, called as the maturity date.
Current yield is the interest rate / market price. It is also affected by the risk profile of the organization. Risk is an aspect of any organization's operation. When it is recognized, understood, and managed, risk can set the stage for sustainable growth. Companies need identify risk within their operations and plan a systematic approach to managing it.
According to www.anao.gov.au:
"Effective risk management ...
The solution discusses the differences between current yields on different bonds which can be explained by their relative riskiness and different terms to maturity.