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Reinvestment risk When interest rates are declining, investors have to reinvest their interest income and any return of principal, whether scheduled or unscheduled, at lower prevailing rates.
Interest rate risk When interest rates rise, bond prices fall; conversely, when rates decline, bond prices rise. The longer the time to a bond's maturity, the greater its interest rate risk.
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What are the advantages of reinvestment rate risk over interest rate risk?
B
What is the difference between annual rate and annual yield?
The annual rate is the interest rate charged on a loan or investment, while the annual yield is the actual return earned on an investment, taking into account factors like compounding and reinvestment of earnings.
What is the difference between APY and interest rate?
The difference between APY and interest rate is that APY (Annual Percentage Yield) takes into account compound interest, while the interest rate does not. APY reflects the total amount of interest earned on an investment or savings account over a year, including the effect of compounding.
What is the definition of reinvestment assumption?
The definition of reinvestment assumption is an assumption made concerning the rate of return that can be earned on the cash flows generated by capital budgeting projects. The cash flow can be interest, earnings, dividends, or rent.
What is the Difference between interst rate swap and interest rate future?
The simple answer is that an Interest Rate Swap (IRS) is Over The Counter (OTC) while a Futures Contract is Exchange Traded.
What are the advantages of reinvestment rate risk over interest rate risk?
B
What is the difference between annual rate and annual yield?
The annual rate is the interest rate charged on a loan or investment, while the annual yield is the actual return earned on an investment, taking into account factors like compounding and reinvestment of earnings.
How does the real interest rate relate to the nominal interest rate?
A real interest rate and a nominal interest rate are quite similar. The only real difference between the two interest rates are that a nominal interest rate include the cost of inflation where as the real interest rate does not.
What is the difference between the coupon rate and the interest rate?
Coupon rate is something that is paid semiannually. The interest rate is something that starts as soon as a bond is issued.
What is the difference between APY and interest rate?
The difference between APY and interest rate is that APY (Annual Percentage Yield) takes into account compound interest, while the interest rate does not. APY reflects the total amount of interest earned on an investment or savings account over a year, including the effect of compounding.
What is the definition of reinvestment assumption?
The definition of reinvestment assumption is an assumption made concerning the rate of return that can be earned on the cash flows generated by capital budgeting projects. The cash flow can be interest, earnings, dividends, or rent.
What is the Difference between interst rate swap and interest rate future?
The simple answer is that an Interest Rate Swap (IRS) is Over The Counter (OTC) while a Futures Contract is Exchange Traded.
What is the difference between flat rate and reducible interest?
Reducible interest means that one only pays interest on the balance of money owing at the end of the month. Flat rate means that interest is calculated on the original load. Reducible interest rate is approx. equal to twice the flat interest rate.
Difference between discount rate and interest rate?
Interest rate is the amount that is paid over and above the original loan amount. Discount rate is the amount of money that is cut or reduced from the original price.
Difference between interest rate and discount rate?
Interest rate is the amount that is paid over and above the original loan amount. Discount rate is the amount of money that is cut or reduced from the original price.
What is the difference between the prime interest rate and that charged by banks to the public?
The difference is that rates charged by banks to the public have an additional rate added to the prime rate based on creditworthiness and rating. Poor credit equals a higher interest rate and vice versa.
What is the difference between the coupon rate and the interest rate in a financial instrument?
The coupon rate is the fixed rate of interest that a bond pays out annually, while the interest rate is the overall rate that includes the coupon rate and any other potential returns or fees associated with the financial instrument.
