Fixed income - Interest Rate Risk and Return
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4 Terms
1
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Two investors holding the same bond can have different exposures to interest rate risk if they have different time horizons
What are they
LT investment horizon > Mac D → concerned about reinvestment risk
lower interest rates
ST investment horizon < Mac D → concerned about price risk
higher interest rates
=> at the Mac D reinvestment risk and price risk offset each other
2
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higher coupon →
lower duration
lower volatility
3
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longer maturity →
longer interest rate risk exposure
higher duration
higher volatility
4
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lower YTM →
higher volatility
Note 
Flashcards (309)