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8 Cards in this Set

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market risk (interest-rate risk)
ifor an investor who sell fixed income security before the maturity date, increase in interest rate will result in realization of a capital loss.
duration
percentage change in the price of a bond due to 100 basis point change in yields.
reinvestment risk
variability in the returns from reinvestment from a given strategy due to change in market rate.
interest rate risk vs. reinvestment risk
interest rate risk = risk that interest rates will rise.

reinvestment risk = risk that interest rate will fall.
timing or call risk
risk associated with call provision:
1. cash flow pattern is not known
2. exposed to reinvestment risk
3. capital appreciation potential will be reduced.
credit risk (default risk)
risk that the issuer of a fixed income security may default.
yield curve (maturity risk)
adjustment made to account for differential interest-rate risks in the two hedged bonds.
liquidity risk
risk that investor will have to sell a bond below its true value where true value is indicated by a recent transaction.