Question

What are some of the most important risks associated with bonds?

Answer 1

A) Interest rate risk : Risk that the future interest rate will be volatile and will affect the price of the bond adversely.

B) Default risk : Risk that the issuer of the bond will not pay the amount back when the same is due during interest payments and also during the maturity.

C) Liquidity risk : Risk that the investor will not be able to find a buyer or no one would be willing to buy the bond when investor wants to sell it .

D) reinvestment risk : Risk that the investor would not find suitable re-investment for the coupon payment received or for the amount received during maturity of the bond.

Other not so significant risks are :

Rating downgrade risk

Inflation rate risk