TY - JOUR
T1 - Understanding credit risk
T2 - A classroom experiment
AU - Servátka, Maroš
AU - Theocharides, George
PY - 2011/1
Y1 - 2011/1
N2 - This classroom experiment introduces students to the notion of credit risk and expected return, by allowing them to trade on comparable corporate bond issues from two types of markets: investment-grade and high-yield markets. Investment-grade issues have a lower probability of default than high-yield issues and thus provide a lower yield. Participants can earn money in three ways: from coupon payments, from the face value of the bond, and by capital gains. While participating in an experiment, students learn about the notion of risk and return, how credit risk affects bond prices, the movement of bond prices through time, and other general characteristics of the bond markets.
AB - This classroom experiment introduces students to the notion of credit risk and expected return, by allowing them to trade on comparable corporate bond issues from two types of markets: investment-grade and high-yield markets. Investment-grade issues have a lower probability of default than high-yield issues and thus provide a lower yield. Participants can earn money in three ways: from coupon payments, from the face value of the bond, and by capital gains. While participating in an experiment, students learn about the notion of risk and return, how credit risk affects bond prices, the movement of bond prices through time, and other general characteristics of the bond markets.
UR - http://www.scopus.com/inward/record.url?scp=78651263891&partnerID=8YFLogxK
U2 - 10.1080/00220485.2011.536492
DO - 10.1080/00220485.2011.536492
M3 - Article
AN - SCOPUS:78651263891
SN - 0022-0485
VL - 42
SP - 79
EP - 86
JO - Journal of Economic Education
JF - Journal of Economic Education
IS - 1
ER -