Define what is meant by interest rate risk


Problem 1: Some financial advisors recommend you increase the amount of federal income taxes withheld from your paycheck each month so that you will get a larger refund come April 15th. That is, you take home less today but get a bigger lump sum when you get your refund. Based on your knowledge of the time value of money, what do you think of this idea? Explain.

Problem 2: Define what is meant by interest rate risk. Assume you are the manager of a $100 million portfolio of corporate bonds and you believe interest rates will fall. What adjustments should you make to your portfolio based on your beliefs?

600 to 700 words.

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Finance Basics: Define what is meant by interest rate risk
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