Bonds are normally treated as low risk securities, though they are Essay

Bonds be normally treated as low risk securities, though they are rarely risk-free. Assess the risks associated with bonds. treat the implications of these r - Essay ExampleBonds are one of the methods of raising capital by the issuer, a equalityt from merchandising shares or taking a bank loan. Once issued, the bonds too can be traded in the commit market like shares. Bonds, like other debts, can be structured in different ways. Bonds entice interest and the yield from the bond is the interest rate remunerative on the bond divided by the bonds market price. Bonds are normally treated as low risk securities, especially the Government Bonds. Corporate bonds by blue-chip companies are also considered safe. Nevertheless, bonds are rarely risk free. at that place are various risks associated with bonds and can have far reaching impacts.The income from bond is usually fixed tho interest rate fluctuations affect the capital value of investments. The yield and hence the market price evermore depends on the market environment. A bond investor would normally avoid investing in overvalued bonds where the risk of disregard far outweighs the extra yield. If a bond portfolio is well structured it would be diversified across a range of credits with no concentration in undue sectors or issuers.Even the highly rated bonds transport certain amount of risks. Bond may be called or redeemed in the first place the maturity date. measly management of the organization by the issuer may reduce or even destroy the value of the bond. If a company is doing very well and has surplus cash to pay the outstanding debts, they may call the bonds. They would government issue in lower rate of interest for the investor. The issuer may call back this bond and issue clean bond with a lower rate of interest. Hence, if the bond has been called, there would be no interest paid on such bonds.Various economic risks affect the value of bonds. These include rate of interest and the flash (O nline, 2004). If a bond was issued before the interest rate increased, it will lose its vale if it is sold before the maturity date. This is because in such a situation its price is likely to be lower than par