fixed income relationship query deepak kanodia

deepakkrkanodia
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fixed income relationship query deepak kanodia

Postby deepakkrkanodia » Wed Sep 12, 2012 4:18 pm

sir

plz explain the relationship between int rate risk and bond maturity and reinvestment risk of bond in terms of increase and decrease of either

regards

deepak kanodia

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shreyas
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Re: fixed income relationship query deepak kanodia

Postby shreyas » Thu Sep 13, 2012 4:12 pm

Can you please be more specific more about the exact doubt you have.

deepakkrkanodia
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Re: fixed income relationship query deepak kanodia

Postby deepakkrkanodia » Sat Sep 15, 2012 8:53 pm

mr shreyas

i want to know will bond maturity as well as reinvestment risk will increase or decrease if int rate risk increases or decreases?

regards

deepak

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shreyas
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Re: fixed income relationship query deepak kanodia

Postby shreyas » Mon Sep 17, 2012 12:29 am

When interest rates increase the bond value falls which is known as interest rate risk, but the reinvestment risk falls as the coupon received from the bond is re-invested at higher market rate of interest and vice-versa when interest rates fall.
When you talk about a bond near its maturity, the interest rate risk fall as the amount about to be received is less sensitive to interest rate movement and the reinvestment risk persist as the amount received from the bond may be invested at lower yields when compared to the earlier bond investment.

deepakkrkanodia
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Re: fixed income relationship query deepak kanodia

Postby deepakkrkanodia » Tue Sep 18, 2012 12:55 pm

mr shreyas

plz see the following statement according to my understanding and tell whether its correct or not:

1. higher coupons have higher reinvestment risk and low interest rate risk
2. lower coupon have low reinvestment risk and high interest rate risk
3. longer maturities have high reinvestment risk as well as high interest rate risk
4. shorter maturities have low reinvestment risk and low interest rate risk

plz explain if above sentences are incorrect

regards

deepak

content.pristine
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Re: fixed income relationship query deepak kanodia

Postby content.pristine » Thu Sep 20, 2012 11:38 am

Hi Deepak,

The 4 relationships you have stated are absolutely correct, all else equal (ceteris paribus)

8-)


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