Risk

RECENT NEWS
Financial Times  7 hrs ago  Comment 
Worsening situation in Ukraine leaves some traders wary, while Japanese shares fall as downbeat data fuel questions about its economic outlook
Wall Street Journal  8 hrs ago  Comment 
The People's Money: Rich investors are jazzing up their returns by using borrowed money. But experts warn that wealthy Asians are particularly vulnerable to big losses if markets turn against them.
New York Times  9 hrs ago  Comment 
For 30 years, Charlie Birnbaum’s parents called the house at 311 Oriental Avenue home — and he refuses to surrender it to a redevelopment project at any price.
WA Business News  10 hrs ago  Comment 
Qantas will need to come good on its promise to improve its earnings and lower debt in the next six months if it is to avoid another downgrade to its credit rating.
Insurance Journal  10 hrs ago  Comment 
Merriwether and Williams Insurance Services in California has named Kathleen Creedon director of risk management services. Creedon will focus on the development of Merriwether’s risk management services, including consulting, construction...
NPR  Aug 28  Comment 
In an exclusive interview with NPR, the head of the Centers for Disease Control and Prevention shares his impressions from a visit to West Africa.
Forbes  Aug 28  Comment 
Looking back to 154 days ago, CommScope Holding Co., Inc. (NASD: COMM) priced a 17,500,000 share secondary stock offering at $22.00 per share. Buyers in that offering made a considerable investment into the company, expecting that their investment...
Insurance Journal  Aug 28  Comment 
Pleasanton, Calif.-based One Risk Group LLC has merged Integrated Employee Benefits Solutions into its operating platform. As a result of the merger, IEBS owner Robert Silva has joined ORG as vice president in its employee benefits practice. At...
Financial Times  Aug 28  Comment 
Escalating tensions in Ukraine weigh on risk appetite and lift demand for top-tier government bonds, although S&P 500 trims early fall




 

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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