Section 9
Bond Risk
By Boundless
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Price risk is the risk that the market price of a bond will fall, usually due to a rise in the market interest rate.
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Reinvestment risk is the risk that a bond is repaid early, and an investor has to find a new place to invest with the risk of lower returns.
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Price risk is positively correlated to changes in interest rates, while reinvestment risk is inversely correlated.
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Default risk is the risk that a bond issuer will default on any type of debt by failing to make payments which it is obligated to make.
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The credit rating is a financial indicator assigned by credit rating agencies; bond ratings below BBB-/Baa are considered junk bonds.
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There is no guarantee of how much money will remain to repay bondholders in a bankruptcy, therefore, the value of the bond is uncertain.