Aaron Posted October 21, 2009 Report Share Posted October 21, 2009 How can the risk premium increase greater than the yield? Lets say you have a 0 risk bond @ 2%, a risky bond @ 5% and the risk premium is therefore 3%. Risk increases on the risky bond by 1%, yet the risk premium increases by 1.5%. Why does it increase more than 1%? I know its a long shot, but oh well. Thanks guys. Quote Link to comment Share on other sites More sharing options...
KillJoy Posted October 21, 2009 Report Share Posted October 21, 2009 My head hurts. You owe me a beer. KillJoy Quote Link to comment Share on other sites More sharing options...
Aaron Posted October 21, 2009 Author Report Share Posted October 21, 2009 My head hurts. You owe me a beer. KillJoy If you get me the answer, I will buy you one. Quote Link to comment Share on other sites More sharing options...
KillJoy Posted October 21, 2009 Report Share Posted October 21, 2009 If you get me the answer, I will buy you one. 4 KillJoy Quote Link to comment Share on other sites More sharing options...
Aaron Posted October 21, 2009 Author Report Share Posted October 21, 2009 4 KillJoy Found the answer. No 4 beers for you. :bangbang: Quote Link to comment Share on other sites More sharing options...
jeffro Posted October 21, 2009 Report Share Posted October 21, 2009 ah i took macro econ last year at ohio state. damn i hated it. couldnt understand my professor as he was from the middle yeast or something. Quote Link to comment Share on other sites More sharing options...
Aaron Posted October 21, 2009 Author Report Share Posted October 21, 2009 ah i took macro econ last year at ohio state. damn i hated it. couldnt understand my professor as he was from the middle yeast or something. ahahahahahaha This is Econ 520 Money and Banking. I am taking Econ 502 (Macro) also. I took 201 (intro macro) about 5 years ago. Quote Link to comment Share on other sites More sharing options...
AWW$HEEET Posted October 21, 2009 Report Share Posted October 21, 2009 ahahahahahaha This is Econ 520 Money and Banking. I am taking Econ 502 (Macro) also. I took 201 (intro macro) about 5 years ago. Money and Banking is a mindfuck class. Quote Link to comment Share on other sites More sharing options...
Trouble Maker Posted October 21, 2009 Report Share Posted October 21, 2009 42 Quote Link to comment Share on other sites More sharing options...
Sparky Posted October 21, 2009 Report Share Posted October 21, 2009 Lol, i should know. Im in Finance 403, Econ 531 and Econ 503 this qtr and i dont know shit. Quote Link to comment Share on other sites More sharing options...
Radio Flyer1647545514 Posted October 21, 2009 Report Share Posted October 21, 2009 I took macro and micro. Ugghhhh, I hate business classes. Why does the risk only increase 1%? If you're doing average than it would increase by 1.5% to 3.5 instead of 3. I don't know what you figured out and what info was given to you. Quote Link to comment Share on other sites More sharing options...
Aaron Posted October 21, 2009 Author Report Share Posted October 21, 2009 I took macro and micro. Ugghhhh, I hate business classes. Why does the risk only increase 1%? If you're doing average than it would increase by 1.5% to 3.5 instead of 3. I don't know what you figured out and what info was given to you. All of this was given. The question was why does risk premium increase more than the increased risk? Answer is that when risk of the risky bonds increases, money is shifted from risky bonds to riskless bonds. In doing so, the interest rate of the risky bonds increases, and because more people want riskless bonds, their rate decreases. Risk premium is the difference between the 2 assets. So if one increases by 1%, and the risk premium is 1.5%, the other asset decreased by 0.5%. Quote Link to comment Share on other sites More sharing options...
ghost face Posted October 21, 2009 Report Share Posted October 21, 2009 I took 520 2 quarters ago... but it seems like you got the answer. finance major? Quote Link to comment Share on other sites More sharing options...
Aaron Posted October 21, 2009 Author Report Share Posted October 21, 2009 I took 520 2 quarters ago... but it seems like you got the answer. finance major? Family resource management. Graduate in December. Quote Link to comment Share on other sites More sharing options...
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