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What are the types of risks associated with investing in bonds and how do these two risks affect the pure expectations theory?
Wiki User
∙ 14y ago
There are two major risks associated with investing in bonds
1. Interest rate risk - If the prevailing interest rates in the markets are lower than the rates when the bonds were issued, then the returns on our bonds may be below our expectations and calculations
2. Counterparty risk - This is the risk wherein, the bond issuer defaults on his payments or declares bankruptcy.
Wiki User
∙ 14y ago
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