ACTSC445 Lecture Notes - Reinvestment Risk, Prepayment Of Loan, United States Treasury Security

48 views3 pages

Document Summary

Department of statistics and actuarial science, university of waterloo. Unit 3 risks associated with investing in xed income securities. These two potential sources of return are exposed to several risks, which we now discuss. Typically, the value of a fis decreases as interest rates increase. Thus, for the owner of a fis who needs to sell when interest rates on the market are rising, a loss occurs. This risk is the market risk, and is the most important one for investors in the fis market. The benchmark used to monitor changes in interest rates is usually the yield level on treasury securities. The interest-rate risk is typically quanti ed by using a measure called duration, which we will discuss later on. Roughly, the duration gives us a way to approximate by how much the price of a security will change if the interest rates change.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

Related Questions