Fixed income portafolio - Coursework Example

is the fear or risk that an investment may fail to yield dividends of equal measure as the previous business whose profits resulted to its reinvestment. Normally low interest rates prevent bond coupons from earning the same returns as the previous bond payments. Meanwhile, price risk is the risk associated with a decline in the value of securities and bonds which can result in low dividends from investments. The yield curve is predominately exploited in determining economic conditions and impression on future interest rates.

The curve shows that longer maturity bonds have higher yields than shorter maturity bonds because of time risks (Cohen & Melberg, 2010). The proportion of interest sensitive income increases as the time to maturity increases, making long-term bonds more sensitive to interest rates than shorter term bonds. Bond prices have an inverse relationship with interest rates therefore B will take a longer time with E taking the shortest