Always GreenerChasing Return in a Challenging Investment Environment. This is known as reinvestment risk. Duration risk is the name economists give to the risk associated with the sensitivity of a bonds price to a one percent change in interest rates. This also is referred to as holding-period risk the risk that not only a better opportunity might be missed, but that something may happen during the time you hold a bond to negatively affect your investment. This can be accomplished in a variety of ways, including through purchases in the secondary market or forced purchases directly from bondholders at a predetermined price, referred to as refunding risk. Yield to Call Example, find the yield to call on a semiannual coupon bond with a face value of 1000, a 10 coupon rate, 15 years remaining until maturity given that the bond price is 1175 and it can be called 5 years from now. The bond's principal is repaid early, but the investor is left unable to find a similar bond with as attractive a yield. Some loans are riskier than others. Where to Find Economic Indicators, smart bond investors pay close attention to key or "leading" economic indicators, primarily watching for any potential impact they may have on inflation and, because there is a close correlation, interest rates. Don't Reach, investors who decide which bonds to buy based solely on a bond's yield are "reaching for yield one of the most common mistakes bond investors make. .
This decreased demand depresses the price of older bonds in the secondary market, which would translate into you receiving a lower price for your coupon election 1918 bond if you need to sell. If you need to sell your 4 percent bond prior to maturity you must compete with newer bonds carrying higher coupon rates. It is called duration. Say you bought a 1,000 bond with a 6 percent coupon a few years ago and decided to sell it three years later to pay for a trip to visit your ailing grandfather, except now, interest rates are at 4 percent. This means that the bond obligor will either be late paying creditors (including you, as a bondholder pay a negotiated reduced amount or, in worst-case scenarios, be unable to pay at all. Interest rate riskalso referred to as market risk increases the longer you hold a bond. Nationally Recognized Statistical Rating Organizations (nrsros). Event risk is extremely hard to anticipate and may have a dramatic and negative impact on bondholders. Here are a few useful online resources. Discount Bonds, a bond is considered to be a discount bond when its price is less than its face value.
How to find a bond's coupon rate
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