Question

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.

Answer #1

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.

Thumbs up please if satisfied. Thanks :)

Comment if further doubts in above.

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