Which one of the following terms refers to the risk arises for bond owners from fluctuating interest rates?
Correct answer: B. Interest Rate Risk
- A. Fluctuations Risk
- B. Interest Rate Risk
- C. Real-Time Risk
- D. Inflation Risk
Explanation
Interest rate risk is the possibility that changing market rates will reduce a bond’s market value, especially when rates rise. Inflation risk instead concerns the loss of purchasing power from rising prices.
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About Business Finance
Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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