SIE 20 - Investment Risks

Risks that cannot be avoided through diversification.

Risk that the value of a bond will decline due to a rise in interest rates.

• Risk that an asset may decline in value over time due to a shrinking value in currency
• Bond's real interest rate = nominal yield - inflation

A measurement of a security's volatility relative to the entire market

Risk that a company may perform poorly and cause a decline in the stock value or inability to pay back bond holders.

• Regulatory = US regulations
• Political = non-US politics

• Real estate
• LLPs

Risk that mortgages will be paid off early due to lower interest rate and lower yields will occur over time.

Risk that interest rates will fall an that semiannual coupons will be reinvested at a lower rate.

Risk of loss when converting a foreign investment into US dollars.