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New model predicts bond risk, shaping future debt costs and capacity.

Journal of Financial and Quantitative Analysis
An Analytic Model of Bond Risk Differentials
Harold Bierman, Jerome E. Hass

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The article discusses the risks involved in buying bonds, focusing on the risk of default. The researchers developed a model to understand how investors adjust interest rates to account for this risk. They found that investors demand higher interest rates on bonds with a higher risk of default. This model helps determine the equilibrium interest rate and factors influencing it, as well as the cost of debt for a company.