Albert just purchased a $1,000,5.4%,10-year bond when he heard about his friend Charlie who just bought a equal quality bond at $1,000;9.5%,10-year bond.What kind of risk did Albert just experience?
A)Interest rate
B)Market
C)Financial
D)Business

Question

Quizplus · Accepted Answer

Albert purchased a bond with a lower interest rate (5.4%) compared to his friend Charlie's bond (9.5%). As interest rates rise, the value of bonds with lower interest rates decrease. This means that if interest rates rise, Albert's bond may be worth less than what he paid for it, whereas Charlie's bond that has a higher interest rate may hold its value better. This is an example of interest rate risk.

Albert Just Purchased a $1,000,5