Identify and distinguish between Market Value risk and Income risk: This will be on the test on Saturday.
maybe i am missing something but i think the names are off
Market Value risk is the risk of a change in teh price of your bond/equity? Income Risk is the risk of a change in your income flow due to bonds being called or dividends being lowered/cancelled.
Income risk would relate to reinvestment probably? Bonds being called would be more like contigent claims risk?
Market Value: Go short term bonds because you are sensitive to capital fluctuations (less concerned about reinvestment rate/income) Income: You need stable income so you go LT bonds (market value will fluctuate) but you get the same payment each period. Do I get some partial points on this?
bigwilly Wrote: ------------------------------------------------------- > Market Value risk is the risk of a change in teh > price of your bond/equity? > Income Risk is the risk of a change in your income > flow due to bonds being called or dividends being > lowered/cancelled. than it is called Price risk and Cash Flow risk and a long with Reinvestment Risk and Credit Risk completes risks for Life Insurer.
I just pulled it out of my a$$, what is the answer.
^For pulling it out of your a$$, your answer doesnt stink. You Sh1t must smell like roses.
Full credit. Data_Monkey Wrote: ------------------------------------------------------- > Market Value: Go short term bonds because you are > sensitive to capital fluctuations (less concerned > about reinvestment rate/income) > > Income: You need stable income so you go LT bonds > (market value will fluctuate) but you get the same > payment each period. > > Do I get some partial points on this?
Pimp, are your referring to the criteria of contructing a fix-income benchmark? My 2 cent, is if client is concerned with market value risk, then your FI benchmark should be short-term, however, if your client’s concern is income risk, since longer-term bond pays more, your benchmark is longer-term bond. Am I right, or I gave some answer totaly different from what you are referring to.
That’s correct. I give you 6 points. ws Wrote: ------------------------------------------------------- > Pimp, are your referring to the criteria of > contructing a fix-income benchmark? My 2 cent, is > if client is concerned with market value risk, > then your FI benchmark should be short-term, > however, if your client’s concern is income risk, > since longer-term bond pays more, your benchmark > is longer-term bond. Am I right, or I gave some > answer totaly different from what you are > referring to.
pimp Wrote: ------------------------------------------------------- > That’s correct. I give you 6 points. > > ws Wrote: > -------------------------------------------------- > ----- > > Pimp, are your referring to the criteria of > > contructing a fix-income benchmark? My 2 cent, > is > > if client is concerned with market value risk, > > then your FI benchmark should be short-term, > > however, if your client’s concern is income > risk, > > since longer-term bond pays more, your > benchmark > > is longer-term bond. Am I right, or I gave > some > > answer totaly different from what you are > > referring to. I AM GOING TO FAIL
Me too - the AM section is going to kill me.
Long term bonds (without options) provide stability of income. Short term bonds provide (relative) stability of market value. Income risk would presumably be the risk that income is insufficient to meet needs and is presumably measured by st dev of periodic income. There is also reinvestment risk, which is that the income won’t be reinvested at the same rates that you initially projected and is presumably measured by the st dev of reinvestment income given some model of interest rate fluctuations (probably tested using a monte carlo method).
Yeah, I read that question and I had no clue. I would have said something about floating or fixed payments. 0pts
4 Primary COnsiderations when selecting a bond benchmark: Market Value Risk : Risk that rates go up and your portfolio declines Income Risk: If stability of income is appropriate, choose LT bonds Credit Risk: Default Liability Framework Risk: ALM-related
I failed.
I already see that moment when i click on link to see results. Everyone gather around my cube. and big fat FAIL is on the screen.
59%, Exam 3 PM, volume 2 Wife will cut off nuts if I fail.
jimmylegs Wrote: ------------------------------------------------------- > 59%, Exam 3 PM, volume 2 > > Wife will cut off nuts if I fail. So will mine