Risk

RECENT NEWS
MedPage Today  8 hrs ago  Comment 
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MedPage Today  11 hrs ago  Comment 
(MedPage Today) -- Paradoxical adverse event no higher than with conventional therapies
Insurance Journal  11 hrs ago  Comment 
Older drivers with a history of falling have a 40 percent higher risk of being involved in motor vehicle crashes. But despite this increased risk, drivers ages 40 – 80 still have a lower risk of being involved in a …
The Hindu Business Line  Apr 27  Comment 
Non-alcoholic fatty liver disease (NAFLD) is an independent risk factor for atherosclerosis and therefore cardiovascular disease (CVD), a new study suggests. CVD is primarily the cause of death o...
MedPage Today  Apr 27  Comment 
(MedPage Today) -- Increase modest, waned over time
The Economic Times  Apr 27  Comment 
In its report on Asia-Pacific sovereigns, Moody's Investors Service also cautioned that a prolonged worsening in asset quality at state-run banks is the main threat to India's sovereign credit profile and suggested the government provide for...
The Economic Times  Apr 27  Comment 
Foreign-currency debt was highest as a share of GDP in Turkey at 41 per cent (including indexed debt) and Russia at 37 per cent.
Insurance Journal  Apr 27  Comment 
Global Risk Partners, the acquisitive insurance broking and managing general agency (MGA) investment vehicle, has agreed to back the management buyout of LONMAR GLOBAL RISKS, the specialist Lloyd’s broker. The transaction is subject to...
New York Times  Apr 27  Comment 
The Obama administration has been fighting a semi-legal war for almost eight years. That’s not a power he should leave for the next president.




 

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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