Risk

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Motley Fool  May 24  Comment 
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The Hindu Business Line  May 24  Comment 
People with faster resting heart rate are at an increased risk of developing diabetes, a new large—scale study has warned. An association between resting heart rate and diabetes suggests...
Forbes  May 23  Comment 
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Benzinga  May 22  Comment 
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Insurance Journal  May 22  Comment 
Beazley has launched of a new risk management website for Beazley Breach Response (BBR) policyholders. The site offers tools and resources to help insureds prepare for and respond to a data breach and minimize reputational risk. In 2012, Beazley...
Insurance Journal  May 22  Comment 
Southwest Risk, LP has named Jennifer Flake vice president and broker of transportation. Flake will work out of Southwest Risk’s new Fort Worth, Texas office. Flake began her insurance career in 1997 starting with a direct market followed by...
newratings.com  May 22  Comment 
LONDON (dpa-AFX) - A popular dating website has allegedly been hacked, with the hacker exposing the sensitive personal and sexual details of nearly 4 million users on to the web. UK television station Channel 4 News said it discovered the...
Forbes  May 22  Comment 
Persistent low growth combined with low interest rates are constricting the traditional sources of revenue for the insurance industry, creating an urgent need to seek out new sources of revenue and accelerate innovation. The industry is threatened...




 

Risk in economic terms indicates the probability of the occurance of a specific event, which would lead to damage or loss (p.e. the likelihood of losing ship and freight to a hurricane). In distinction to risk, chance indicates the possibility of a positive outcome.

Investments include both risk and chance. This is the so called Risk-Return Tradeoff: low levels of uncertainty offer low potential returns but also low potential losses, whereas high levels of uncertainty offer high potential returns but also high potential losses. Another way many investors quantify and calculate risk is in terms of the standard deviation of returns. This is because all else being equal, risk averse investors prefer returns that are less volatile and more predictable.

Companies try to identify, analyse and control risk through concepts of risk management.

Risks of Bond Investing

Bonds carry credit risk ("will I get my money back?"), prepayment risk, liquidity risk and interest-rate risk.

  • Many bonds give the bond issuer the right to repay the bond early -- which happens more often when rates are low, in other words, just when you don't want your money back. This is prepayment risk.
  • Liquidity risk is the risk that you won't find a good price for your bond when you want to sell it -- because there are so many more bond issuers than stock issuers, and because bonds are not exchange-traded, there may not be a willing buyer.
  • Interest-rate risk is the opposite of prepayment risk: when rates go up, the value of your bond will drop (it drops more, the further away it is from maturity). If your circumstances change and you need to sell the bond before maturity, you can lose capital that you would otherwise receive, if you held the bond to maturity.
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