The document outlines several types of risks associated with bond investments: 1) Interest rate risk, inflation risk, reinvestment risk, and credit risk pose the greatest threats as they relate to changes in rates that can decrease bond prices or the value of future cash flows. 2) Call risk, liquidity risk, and event risk also impact bond holders, such as the bond being paid off early, difficulty selling the bond, or external events negatively affecting the issuer. 3) Investors in foreign bonds face additional exchange rate risk if the foreign currency fluctuates against the domestic currency.

1. Risk associated with Bonds
Presented By Habib Ullah
Class No: 13
BBA 8th Semester

2. Risk associated with Bonds
Interest rate risk
Call risk
Liquidity risk
Inflation risk
Exchange rate risk
Event risk
Reinvestment risk
Credit risk
Political risk

3. Interest rate risk
Inverse relationship between the interest rate and
bond value
The risk that investor face is that the price of the
bond decline if the market interest rate rise.

4. Inflation risk
•Purchasing power risk
•It arise from the decline in the value of security cash
flow due to inflation, which is measured in term of
purchasing power.

5. Exchange rate risk
•Currency risk
•The risk of receiving less of the domestic currency
when investing in a bond that makes payment in a
currency other than domestic currency is called
exchange rate risk.

6. Call risk
•The risk faced by the holder of the bond, that the
issuer will call the bond before maturity date.

7. Liquidity risk
•The risk that investor will sell a bond below its
indicated value.
•The wider the bid-ask spread the greater the
liquidity risk

8. Reinvestment risk: the risk that principal and interest
amount will be reinvested at a lower rate.
Event risk: risk due to natural disaster
Credit risk: the risk that the issuer will default on its
obligation

9. Political risk
•The possibility of any political or legal action
adversely affecting the value of a security is called
political risk.