Bond investment Risk

Bond investment Risk

Bond investment risk can be explained in terms of risk of default, decline in market value of bonds.

1.    Risk of Default

First risk in bond is risk of default of payment of interest and capital amount. it is possible that company in which bond you are investing , become bank corrupt , and may not be able to pay not only interest , but also your investment.

2.    Market Value Decline

Second risk of bond investment is decline in market value of bond. A increase in interest rate would result in decrease in market value of bond. Therefore if you have purchase bond at market rate, then a decrease in market value will reduce your wealth (losses).