discussion reply response 200 words

Initial question:

In a rising interest rate environment, how would bond values change over time? As a bond investor, what measures would you take to manage rate risk?

Reply to this response:

In a rising rate environment, the bond values would be opposite in nature to the interest movement, as a result they would fall. However, the extent of the fall would be defined through the bond duration, in other words the higher the duration, the higher the fall. In order to reduce the interest rate risk, the investor could transfer to shorter maturity papers to decrease the overall risk and duration. In considering the investor, they could also move to floating rate securities, those obtaining the bond until maturity to receive the yields that they received bought by simply obtaining it until maturity. (Brigham & Ehrhardt, 2017).

Brigham, E. F., & Ehrhardt, M. C. (2017). Financial management: Theory and practice (15th ed.). Mason, OH: South-Western.

APA, At least one reference.

 

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