Question: QUESTION 2 (10 marks) (a) There are 4 main risks reflected in bond yields and bondholders require a return premium to compensate for them. (5

QUESTION 2 (10 marks) (a) There are 4 main risks reflected

QUESTION 2 (10 marks) (a) There are 4 main risks reflected in bond yields and bondholders require a return premium to compensate for them. (5 marks) 1. These risks are inflation, liquidity and which two other risks? ii. Which of these 4 risks is reflected in a yield curve? iii. Which of these 4 risks has been of most concern in bond markets in the past 6 months and what effect has it had on bond prices? Explain briefly

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