Risk

RECENT NEWS
Insurance Journal  2 hrs ago  Comment 
Political risk is the biggest concern this year for insurers globally, following several shock outcomes in 2016, a survey of insurers managing $10 trillion in assets showed on Thursday. Political events have overtaken issues such as worries...
guardian.co.uk  10 hrs ago  Comment 
Business leaders to urge negotiators on both sides to focus on the mutual benefits of continued free trade as they begin talks Business leaders will warn on Thursday that disputes over an EU divorce settlement worth “tens of billions of...
MedPage Today  Apr 26  Comment 
(MedPage Today) -- The risk was halved at 15 years
DailyFinance  Apr 26  Comment 
Filed under: News, Environment, Science & Tech A deadly gas lurking beneath Lake Kivu in Africa is at risk of a massive explosion. Read more...   Permalink | Email this | Linking Blogs | Comments
Forbes  Apr 26  Comment 
Banks that integrate their cybersecurity efforts with operational risk will be far more resilient
Insurance Journal  Apr 26  Comment 
At the Spencer Educational Foundation reception, RIMS board director and director of global risk management and insurance at PayPal Inc., Laura Langone, announced St. Joseph’s University’s student team as the winners of the Spencer-RIMS Risk...
CNBC  Apr 26  Comment 
Gold recovered as speculators locked in some profit from recent losses, but some analysts expect further weakness.




 

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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