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Explain Using a Diagram How the "Flight to Quality" After

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Essay

Explain using a diagram how the "flight to quality" after the Subprime collapse lead to a rising spread between lower-quality (BBB-rated) and highest-quality (AAA-rated) bonds.


Definitions:

Salvage Value

The estimated residual value of an asset at the end of its useful life, reflecting what it can be sold for or its scrap value.

Straight-Line Method

A depreciation method where an equal amount of depreciation is charged for each year of the asset's useful life.

Annual Depreciation

The amount of expense allocated during a year to account for the reduction in value of a fixed asset over its useful life.

Salvage Value

The presumed end value of an asset following the completion of its useful life.

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