Question

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

Answer 1

Risks with the bonds

1) Price risk: There is possibility that the bond prices decline if interest rates increase in the market which will lead to capital loss if bonds are sold before maturity

2) Reinvestment risk: Coupon earned on bonds may generate lower returns in cases interest rates decline in the market so leading to lower returns on income from bonds.

3) Credit risk: There is possibility of money loss in case issuer defaults on the bond.

4) Inflation risk: Bond might generate lower real income in case prices level rise in the market