wolfcub1099 wolfcub1099

01-10-2019
Business

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In the fall of 2008, AIG, the largest insurance company in the world at the time, was at risk of defaulting due to the severity of the global financial crisis. As a result, the U.S. government stepped in to support AIG with large capital injections and an ownership stake. How would this affect, if at all, the yield and risk premium on AIG corporate debt?

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sakhilemdletshesm sakhilemdletshesm

04-10-2019

Answer:

• Initially default risk increases, yield increases, price of AIG decreases

• After government intervention, default decreases, yield decreases, price of AIG increases

Explanation: During the fall of AIG, the largest insurance company in the world at the time, was at risk of defaulting due to the severity of the global financial crisis. What really happened is that default risk increased ,yield increased and the price of AIG decreased . As a result, the U.S. government stepped in to support AIG with large capital injections and an ownership stake .After government intervention, default decreased, yield decreased and the price of AIG increased.

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