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Zorluk: KolayDebt Securities and Bond Structure

An investor holds a U.S. Treasury bond. Although the bond carries virtually zero default risk because it is backed by the full faith and credit of the U.S. government, the market value of the bond decreases when market interest rates rise. Which type of risk does this scenario best describe?

  1. Interest rate riskCevap
  2. B
    Credit risk
  3. C
    Liquidity risk
  4. D
    Inverted yield curve risk

Cevap

Interest rate risk
Interest rate risk is the risk that an existing fixed-income security's market price will decline when prevailing interest rates rise. Even securities backed by the U.S. government with zero default risk are subject to interest rate risk.

Adım Adım Çözüm

1
Identify the primary driver of market value changes in the scenario.
The bond's price declines as prevailing interest rates increase.
Bond prices and interest rates share an inverse relationship.
2
Differentiate between credit risk and market/interest rate risk.
U.S. Treasury bonds possess virtually zero default (credit) risk, so price changes stem entirely from market interest rate shifts.
Interest rate risk affects all fixed-income securities regardless of the issuer's credit quality.

Anahtar Kavram

Interest Rate Risk vs. Credit Risk
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Konular

Debt Securities and Bond Structure

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