Interest rate risk is the chance that interest rates will change and thereby change the required return and bond value.

Question

Quizplus · Accepted Answer

Interest rate risk is a real risk faced by bond investors. When interest rates rise, bond prices fall, thus the required return for investors increases as well. When interest rates decrease, bond prices rise and the required return decreases. Therefore, changes in interest rates can have a significant impact on bond values and returns.

Interest Rate Risk Is the Chance That Interest Rates Will