Sort the Bond Risks
Classify common bond risks into rate, credit, inflation, liquidity, and reinvestment categories.
Place each situation in the risk bucket it best represents. Interest-rate risk Credit/default risk Inflation risk Liquidity risk Reinvestment risk A fixed-rate bond falls in market price after comparable yields rise A long-duration bond fund drops more than a short-duration fund in a rate jump An issuer is downgraded and investors demand a wider spread A company misses an interest payment on its notes A 3% fixed coupon buys less when inflation runs at 6% Nominal principal is repaid, but real purchasing power has eroded A small municipal issue has few recent trades and a wide bid-ask spread The investor…
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