If you invested in a corporate bond, would you expect the return...

by FreedomFrog 5 Replies latest jw friends

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  FreedomFrog

  If you invested in a corporate bond, would you expect the return to be higher or lower than government bonds? Why?
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  jaguarbass

  You should expect a higher return because of the risk. But the risk makes them more risky.
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  FreedomFrog

  I posted my answer this morning as "you would get a higher return"...but I couldn't explain why. I'm still trying to wrap my head around all the t-bills, codes and such. One of my friends told me to think of it as a "theory"...finances and stocks are all in theory not as "math". It makes sense now as to WHY it would have a higher return.

  The first question I had to answer was " Suppose you owned a portfolio consisting of $250,000 worth of long-term U.S. government bonds.
  
  Would your portfolio be riskless?"

  I answered "No, the portfolio would not be riskless for a long term t-bill. The risk free bonds would be more on the lines with short term t-bills and at that a person would need to be careful that they are U.S. bonds because some companies claim to have the backing of the government bonds and in reality do not."

  The answer was right but it STILL is confusing to me. I was sure I was going to get it wrong.

  BRAIN FRY HERE
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  BrentR

  With China getting ready to pull the plug on thier USD holdings corporate bonds should in general have much less risk then fed notes. The USD is in very big trouble right now the Federal Reserve honchos are fiddling while US dollars are burning. There are still some central banks that have a much more stable paper debt market right now. Even companies with AAA ratings would be a bit risky now since commercial banks are clamping down on any type of loan that has a risk element to it.

  Right now I do not own any debt paper and have no immediate plans to do so. I am very heavy into commodities which are doing well. Our local realestate values are dropping so I am getting ready grab some investment land real soon.

  "buy when everyone else is selling

  and sell when everyone else is buying"

  Warren Buffet.
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  FreedomFrog

  "buy when everyone else is selling

  and sell when everyone else is buying"

  Hmmmm, interesting quote. Food for thought.
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  MadTiger

  We had several extended discussions in business school on the weak dollar policy that they have had for several years now.
  
  This has been a tool of the current administration and his businessmen cronies used to the detriment of rank-and-file citizens.