Municipal Bond Case Study

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a. Discuss the risks I face in buying each of these assets It is worth noticing that each of these assets is issued by different kinds of issuers, with different characteristics and risks. A municipal bond is a debt security issued by a state, municipality or country. One of the risk of buying a municipal bond is that issuers do not always reveal information about the bond. Thus, the lack of information about the bond can prevent and, therefore rob investors the ability to make a completely good investment. Another risk is liquidity risk, investors not being able to convert the asset into liquid. Another risk associates with municipal bond is interest- rate risk. The interest rate of most municipal bonds is paid at a fixed rate, meaning the rate does not change over the life of the bond. However if interest rates in the marketplace rise, the bond you own will be paying a lower…show more content…
There are many financial services companies, like Moody 's, Standard and Poor 's, Flitch, whose main purpose is to assign assets like bonds and stocks, with a letter grade that determines their level of risk. Although junk bonds are cheaper to purchase, with a much higher interest rate and therefore provide higher return, investors who choose to invest in them with the expectation of reaping future benefits, must be aware of the many risks that they pose. These risks are as follow: market risk, is the possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets in which he is involved. And, of course, credit default risk. Also Strategic risk, in other words, wrong decision making. They also have liquidity risk, because when investors buy a junk bond, they usually find it hard to convert it into liquid because no one will be willing to buy it from

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