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

question 62

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.

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Definitions:

Interest Expense

The cost incurred by an entity for borrowed funds over a period.

Interest Paid

The amount of money paid over a specific time period for the use of borrowed funds.

Premium

The amount by which the price of a financial instrument or security, like an insurance policy, bond, or stock, exceeds its face value or nominal value.

Straight-Line Method

A technique for determining depreciation or amortization by uniformly spreading an asset's cost throughout its lifespan.