Risk

RECENT NEWS
Benzinga  4 hrs ago  Comment 
In a report published Monday, Morgan Stanley analyst Matthew Harrison downgraded the rating on Ultragenyx Pharmaceutical Inc (NASDAQ: RARE) to Equal-weight, while raising the price target from $77 to $126. The analyst believes that the stock...
guardian.co.uk  5 hrs ago  Comment 
The UK government’s sudden abolition of subsidies for wind, solar and biomass energy send a risky message and could shake investor confidence The government’s U-turn on renewable energy risks sending this country back to the dark ages of...
Forbes  6 hrs ago  Comment 
A government shutdown is still not the most likely outcome when the fiscal year begins on October 1. But it not only still can’t be dismissed, based on what happened last week the chances have improved (or, depending on your view in life,...
New York Times  Jul 27  Comment 
The story of Mrs. Clinton’s State Department emails has given Republican candidates an opportunity to attack, and while some of them lost no time doing it, others were more restrained.
Daily FX  Jul 26  Comment 
FX markets – like bond and equity markets – are repricing risk relationships. The Euro is caught in the cross-current.
The Hindu Business Line  Jul 26  Comment 
Risk is maximum for goals between two and five years
The Hindu Business Line  Jul 26  Comment 
  Pashupathy Gopalan, who heads the Asia-Pacific and Sub-Sahara African operations of the US renewable energy major, SunEdison, says he does not believe investing in Tamil Nadu’s pow...
TheStreet.com  Jul 26  Comment 
NEW YORK (TheStreet) -- Social-media giant Twitter -- a Wall Street punching bag -- will release second-quarter earnings results Tuesday after the close, but despite its dire business outlook, there are many reasons to place a long-term bet on...
Daily FX  Jul 25  Comment 
There have been few serious bouts of risk aversion over the past years. Does this past week's slump qualify?
Daily FX  Jul 25  Comment 
We are in the midst of the Summer Lull but don't expect a liquidity dearth to hold back a committed selloff should it arise.




 

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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