Products & Their RisksQuestion 48 of 398
An investor holds long-term bonds and worries that rising market interest rates will reduce their price. This concern describes:
a.Credit risk
b.Liquidity risk
c.Reinvestment risk
d.Interest-rate risk
Explanation
Interest-rate risk is the danger that rising market rates will lower the price of existing fixed-rate bonds, and it is greatest for long-term bonds. Credit risk relates to default, liquidity risk to selling quickly, and reinvestment risk to reinvesting cash flows at lower rates.
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