Interest rate risk

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Interest rate risk is a risk that arises from the fact that bond prices decline when interest rates rise. Under these circumstances, selling a bond prior to maturity will result in a capital loss; the longer the term to maturity, the larger the loss.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Interest rate risk. Arises from the fact that bond prices decline when interest rates rise. Under these circumstances, selling a bond prior to maturity will result in a capital loss; the longer the term to maturity, the larger the loss.

According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),

Interest rate risk. The risk of capital losses to which investors are exposed because of changing interest rates.

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