Risk

RECENT NEWS
Mondo Visione  2 hrs ago  Comment 
The Board of Directors (Board) of Hong Kong Exchanges and Clearing Limited (HKEx) today (Thursday) resolved to establish a Risk Committee to oversee the overall risk management framework of HKEx and its subsidiaries (HKEx Group) and advise the...
MedPage Today  10 hrs ago  Comment 
(MedPage Today) -- Higher levels not associated with additional risk of subclinical atherosclerosis.
MedPage Today  12 hrs ago  Comment 
(MedPage Today) -- Presumed heart risk fails to materialize in first U.S. population-based GCA analysis.
MedPage Today  Mar 4  Comment 
(MedPage Today) -- Tragic cases drive a surgery intern to fill out her own healthcare proxy form.
Insurance Journal  Mar 4  Comment 
York Risk Services Group Inc., a Parsippany, New Jersey-based provider of claims management, managed care, risk management and specialized loss adjusting services, has hired Barry Haring as vice president of sales, Northeast, for York’s Programs...
TheStreet.com  Mar 4  Comment 
NEW YORK (TheStreet) -- The euphoria created by December's announcement of a new era of Cuba-U.S. relations, and what it means for trade and business, has been diminishing gradually as optimism fades in the face of reality. The slow pace of...
Yahoo  Mar 4  Comment 
Low oil prices will compound political risks across emerging markets this year, according to a new report released Wednesday.
Wall Street Journal  Mar 4  Comment 
Three insurance companies and an auto parts maker warned in their most recent annual reports that driverless cars and the technology behind them could one day disrupt the way they do business.




 

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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