The risk of interest rate changes causing the market price of a bond to rise or fall, and resulting in capital gains or losses for investors, is known as what?
Question
The risk of interest rate changes causing the market price of a bond to rise or fall, and resulting in capital gains or losses for investors, is known as what?
Solution
Alright, let's break this down.
First, let's understand what we're talking about. We're talking about a situation where the interest rates change, and because of that, the price of a bond goes up or down. This can lead to investors either making money (capital gains) or losing money (capital losses).
Now, this situation where the price of a bond changes because of interest rate changes is actually a type of risk. It's something that investors need to be aware of when they're deciding to buy or sell bonds.
This specific type of risk has a name. It's called "interest rate risk."
So, to sum up: the risk that changes in interest rates will cause the price of a bond to go up or down, leading to potential gains or losses for investors, is known as interest rate risk. It's like a roller coaster ride - the interest rates are the ups and downs of the track, and the bond price is the roller coaster car. The risk is that the car might go too high or too low because of the track's ups and downs.
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The term 'interest rate risk' is associated withMultiple Choicevariable-return investments like common stocks and mutual funds.fluctuations in market price.floating rate bonds.fluctuations in inflation.fixed-return investments like government and corporate bonds
When the market interest rates decline after a bond is issued, the:Group of answer choicesmarket value of the bond increases.face value of the bond decreases.market value of the bond decreases.bond price is at a discount.
f an investor may have to sell a bond prior to maturity and interest rates have risen since the bond was purchased, the investor is exposed to A perpetuity The coupon effects An indefinite maturity Interest rate risk
True or false: Market risk is the fluctuation of stock and bond prices due to the behaviors of investors in the marketplace.True false question.TrueFalse
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