Understanding Credit Risk: A Classroom Experiment
AbstractThis classroom experiment introduces students to the notion of credit risk by allowing them to trade on comparable corporate bond issues from two types of markets - investment-grade and high-yield. Investment-grade issues have a lower probability of default than high-yield issues, and thus provide a lower yield. There are three ways in which participants can earn money - from coupon payments, the face value of the bond, and by capital gains. Students learn about the notion of risk and return, how credit risk affects bond prices, as well as some general characteristics of the bond markets.
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Bibliographic InfoPaper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 07/06.
Length: 22 pages
Date of creation: 11 Dec 2007
Date of revision:
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Teaching Experiment; Credit Risk; Bond Market; Risk and Return;
Other versions of this item:
- A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
- D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-29 (All new papers)
- NEP-EXP-2008-04-29 (Experimental Economics)
- NEP-RMG-2008-04-29 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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