Home/Are there Risk and Reward in investing in bond?

Are there Risk and Reward in investing in bond?

Any time you lend money you run the risk that it will not be paid back – credit risk. Another source of risk for certain bonds (bond with call option) is that your loan may be paid back early, or ‘called’ this is known as prepayment risk. When you buy a bond, the prospectus will indicate whether a bond is callable and give you a ‘yield-to-call’ figure. The greatest danger for a buy –and-hold bond to an investor is rising inflation rate – inflation risk. A rise in inflation makes prices fall and yields-or interest rates-rise. However, inflation risk, credit risk and prepayment risk are all figured into the pricing of bonds. The more the risk the higher the yield. Investors demand higher yields for longer maturities, as the longer you tie your money up in a bond the more at-risk.

2017-09-05T16:10:19+00:00
Wemabank Logo