The Subprime Crisis Is a Good Example of the Credit

question 45

True/False

The subprime crisis is a good example of the credit risk faced by financial institutions.

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Definitions:

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, often used in financial analyses to find an average value wherein each data point can carry a different weight.

Convexity

A measure of the curvature in the relationship between bond prices and yield, indicating how the duration of a bond changes as interest rates change.

Duration Predictions

Predictions about the length of time it will take for the price of a bond to be repaid by its internal cash flows.

Yield Falls

A situation where the yields on bonds decrease, which typically occurs when bond prices increase.