Asked by Waseem Nazir on Jun 21, 2024
Verified
Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?
Interest Rate Risk
The potential for investment losses due to changes in interest rates which can affect the value of interest-bearing assets.
Corporate Bonds
Debt securities issued by corporations to finance their operations, investments, and other expenditures, paying periodic interest payments to bondholders.
- Elucidate how variations in interest rates affect strategies for managing portfolios of bonds.
Verified Answer
CJ
chealsey jonesJun 21, 2024
Final Answer :
Interest rate risk is the risk that arises for bond owners from fluctuating interest rates. All else the same, if interest rates are expected to fall you should purchase long-term bonds and/or low coupon bonds, and sell shorter-term, higher-coupon bonds.
Learning Objectives
- Elucidate how variations in interest rates affect strategies for managing portfolios of bonds.