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Unformatted text preview: Bond Risks: (Market) Interest Rate Risk: Interest Rates rises and fall constantly. If interest rates rise bond prices will fall (why?) The risk of this occurring is interest rate increase Reinvestment Risk As you receive coupons (interest payments) you need to investment them at the prevailing market rate. Reinvestment risk is when you can only invest coupons at a rate lower than the yield of your bond. How does the size and structure of coupon payments affect reinvestment risk? Credit Risk is the risk that the bond issuer doesnt pay. The higher the probability of default the higher the bond yield. Why do greek ten year government bonds have a yield of 26% why? http://www.treasury.gov/services/Pages/bonds-securites.aspx...
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- Fall '11