1. In practical terms, the risk free rate means that any borrowing conducted at such a rate is free of default risk 2. Market convention has been to adopt government yield curves as the reference risk free term structure 3. Since the onset of the financial crisis market expectations ...
The risk-free rate of return is one of the most basic components of modern finance. The risk-free asset only applies in theory, but its actual safety rarely comes into question until events fall far beyond the normal daily volatile markets. Although it's easy to take shots at theories that...
4. After you read the question, determine what you think the question is asking. This can help you filter out extraneous information and focus quickly on appropriate answer choices. Similarly, after you read the question, it is a good idea to formulate your own answer before reading the answe...
This is when the CFA Institute’s pool of diverse graders (“Standard Setters”) review each question on the exam to determine the likelihood of a ‘Just Qualified Candidate’ will or will not answer that question correctly (in theory). This process essentially weighs the difficulty of question...
Bonds with a lower chance of default are consideredinvestment grade, while bonds with higher chances are considered high yield orjunk bonds. Investors can usebond rating agencies—such as Standard and Poor’s, Fitch, and Moody's—to determine which bonds are investment-grade and which are junk...
is calculated bytaking the average return for the time period and subtracting the risk-free rate, then dividing by the standard deviationfor the period. The number that results is the Sharpe ratio. It can be used for comparison with the ratio for another investment to determine relative risk....
In addition, keeping rates at zero meant the Fed had to “go big” with rate hikes to get back to more natural levels, increasing the risk of a recession (as borrowing costs rose dramatically in a very short time frame). The bottom line To function properly, the economy needs fiscal an...
According to Spool’s risk management white paper, it uses a “risk matrix” to determine the riskiness of protocols. This matrix considers factors such as the protocol’s annual percentage yield (APY), audits performed on its contracts, time since its deployment, total value locked (TVL) and...
“We are implementing IFRS 16 Leases. We have a lot of operating leases for which we need to calculate right-of-use asset. And, we need to determine the right discount rate. We simply calculated the internal rate of return of our cash flows from operating leases and this is our interest...
invests only in large-cap companies with a history of consistently paying dividends. In that case, a fund manager typically cannot deviate from that investment strategy. This principle is important, as the investment style you choose will determine the varying degrees of risk and the potential ...