Series 6 A
Fixed income Securities Risk
|Credit Risk ||possibility that principal or interest will not be paid.
Credit risk is usually measured against US Treasuries, which are considered to have none.|
|Interest Rate risk ||Possibility that increase in general level of interest rates will drive down prices of existing fixed-income investments.
Long-term fixed income securities have more of this risk than those with shorter maturities.|
|Inflationary (Purchasing Power risk) ||Rise in general level of prices reduces the value of fixed payments.
Some debt investors attempt to reduce this risk in their portfolios through equity investments or investments in gold.|
|Call Risk ||Bonds are more likely to be called when rated have dropped, forcing reinvestment of principal at low rates.
Many bond issues are callable.|
|Prepayment risk ||Possibility that homeowners will repay mortgages more quickly than expected when interest rates fail.
This risk is present in mortgage-backed securities and CMOs.|