Fabozzi-Fixed-Income-Risks

Fabozzi-Fixed-Income-Risks - Frank J. Fabozzi Bond Markets,...

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1 Risks of Fixed Income Investments Frank J. Fabozzi Bond Markets, Analysis and Strategies, Third Edition, 1996 Interest-Rate Risk Inverse Relationship between interest rates and bond prices Call Risk Bonds may be retired/redeemed earlier than original maturity Default Risk Bonds may not meet interest and principal obligations Inflation Risk Loss in Purchasing Power: 4% coupon vs. 5% inflation for example Exchange-Rate Risk Applies to International Bonds and value of U.S. Dollar
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2 Risks of Fixed Income Investments
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Unformatted text preview: Frank J. Fabozzi Bond Markets, Analysis and Strategies, Third Edition, 1996 Liquidity Risk Ease of selling, spread between Bid/Ask quotes Volatility Risk Embedded options (e.g., sinking funds) compound risk Reinvestment Risk Yield-to-Maturity (YTM) assumes all coupons reinvested at YTM Risk Risk Innovative bond portfolios (e.g., hedging) not knowing what the risk of the security is We did not know this could happen...
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This note was uploaded on 04/19/2011 for the course FIN 3300 taught by Professor Sherbo during the Spring '11 term at Denver.

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Fabozzi-Fixed-Income-Risks - Frank J. Fabozzi Bond Markets,...

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