Long-term bonds subject the investor to interest rate risk,purchasing power risk,and the possibility of default.

Question

Quizplus · Accepted Answer

Long-term bonds have a longer maturity period which makes them vulnerable to interest rate fluctuations. If interest rates rise, the value of the bond decreases, leading to a decrease in the market value. Additionally, inflation can reduce the purchasing power of the future cash flows paid by the bond. Lastly, there's always a risk of default, which means the issuer could fail to meet their financial obligations, leaving the investors with losses.

Long-Term Bonds Subject the Investor to Interest Rate Risk,purchasing Power