Which of the following best describes interest rate risk?
The risk that a bond issuer will default on the promised coupon payments of a bond.
The risk that the periodic coupon payments received from a bond cannot be reinvested at the same rate of return.
The inverse relationship between changes in interest rates and the price of a fixed income security.
The risk that the purchasing power of periodic coupon payments received will diminish over a long period of time.
The risk that a bond issuer will default on the promised coupon payments of a bond is Default risk
The risk that the periodic coupon payments received from a bond cannot be reinvested at the same rate of return is reinvestment risk.
The inverse relationship between changes in interest rates and the price of a fixed income security is interest rate risk.
The risk that the purchasing power of periodic coupon payments received will diminish over a long period of time is inflation risk.
Therefore 3rd option is correct.
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