ACCT 001 Lecture Notes - Lecture 30: Interest Rate Risk, United States Treasury Security, Unsecured Debt

• School: College of The Sequoias
• Department: Accounting (ACCT)
• Course: ACCT 001
• Professor: skaff

Document Summary

Treasury inflation-protected securities (tips) are indexed to inflation. The ip for a particular length maturity can be approximated as the difference between the yield on a non-indexed treasury security of that maturity minus the yield on a tips of that maturity. A bond spread is often calculated as the difference between a corporate bond"s yield and a. Spread = drp + lp. (rd = r* + ip + drp + lp + mrp, t = r* + ip+ mrp so rd t = spread = drp + lp) Bond"s of large, strong companies often have very small lps. Bond"s of small companies often have lps as high as 2%. The higher the bond risk, the higher the yield, and thus spread. Coverage ratios, such as interest coverage ratio or ebitda coverage ratio. Interest rate (or price) risk for 1-year and 10-year 10% bonds. The risk that cfs will have to be reinvested in the future at lower rates, reducing income.