FixedIncomeRisks

Fixedincomerisks

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Unformatted text preview: Risks
Associated
with
Fixed‐ Income
Securi8es
 Return
Components
 •  Return
obtained
from
inves8ng
in
a
fixed
 income
security
from
the
day
it
is
purchased
 to
the
day
it
is
sold
has
two
components:

 –  Change
in
market
value
 –  Cash
flows
received
from
the
security
during
the
 8me
it
is
held,
plus
addi8onal
income
from
 reinvestment
of
these
cash
flows
 Risks
Associated
with
Fixed‐Income
 Investments
 •  •  •  •  •  •  •  •  •  •  Market,
or
interest‐rate
risk
 Reinvestment
risk
 Timing,
or
call,
risk
 Credit,
or
default,
risk
 Yield
curve,
or
maturity,
risk
 Infla8on,
or
purchasing
power,
risk
 Liquidity
risk
 Exchange
rate,
or
currency,
risk
 Vola8lity
risk
 Poli8cal
or
legal
risk
 Interest
Rate
Risk
 •  Most
important
risk
for
most
fixed
income
 investors....
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