Investment Risk
A client purchases a newly issued 20-year corporate bond paying a fixed coupon of 3%. Shortly after the purchase, market interest rates increase to 5%.
Which risk has the client MOST directly experienced?
When market interest rates rise, the value of existing fixed-rate bonds generally declines because newly issued bonds offer higher yields. This is interest rate risk, one of the primary risks associated with fixed-income investing.
← Value of Life Insurance in Buy-Sell AgreementsThe Exemption Stopped Moving. The Planning Didn’t. →
