Question

What is the relationship between interest rate risk, credit risk, event risk and portfolio management?

Please explain/discuss.

Answer 1

Answer :-  Credit risk - This type of risk is of particular concern to investors who hold bonds within their portfolio. Credit risk is also referred to as Default risk.

Interest rate risk - It refers to the change in the interest rates. A rise in interest rates during the term of an investor's debt security hurts the performance of stocks and bonds.

There is negative correlation between credit risk and interest rate risk i.e., When interest rate risk rises, credit risk falls and when interest rate risk falls, credit risk rises.