An investor fears that economic conditions will wo
An investor fears that economic conditions will worsen and the market prices of her portfolio of investment-grade corporate bonds will decrease more than her portfolio of government bonds. The investor’s fear is best described as a fear of:
A.downgrade risk.
B.default risk.
C.credit spread risk.
参考解答
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2024-11-14 22:57:13
Ans:C;
A is not correct. Downgrade risk is the risk that a credit rating agency will lower a bond’s rating.
B is not correct. Default risk is the risk that the issuer not making timely interest and principal payments as promised.
C is the correct answer. Credit spread riskis the risk that the yield required in the market for a given rating can increase even while the yield on the Treasury security of similar maturity remains unchanged. Since the market prices of the investor’s portfolio of corporate bonds will decrease more than her portfolio of government bonds, the spreads on those bonds widens relative to default-free bonds. Thus the investor is concerned about credit spread risk.
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