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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?
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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.
