Series 7: 10.2.4 Interest Rate Risk

10.2.4  Interest Rate Risk

Fixed-income securities, which include both bonds and preferred stock, are subject to interest rate risk. Interest rate risk is the risk that when interest rates rise, the price of the bond or preferred stock will decline. This is because investors prefer to purchase bonds with the new higher rates, rather than previously issued bonds having lower interest rates. Lack of demand causes them to decline in value.

Bonds with longer maturities are more vulnerable to interest rate risk than bonds with shorter maturities because there is a greater