Unraveling the Mystery of Investing #5




Interest Rate Risk

 

Interest rate risk occurs when changes in interest rates cause the value of certain investments to decrease. For example, when interest rates rise, the market value of fixed-income securities, such as bonds, declines. Bond investors hate inflation because it erodes the value of bonds’ fixed interest payments. Investors are locked into the lower rate as the market rates rise. However, this type of risk may hold less potential for major financial damage.

Content © Rich Brott, 2011

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