Interest rate risk means that, as overall interest rates rise, the value of previously issued fixed-income securities (e.g., bonds) falls. Interest rate risk occurs because investors earning an interest rate lower than currently available market rates would need to sell their securities at a discount (i.e., reduced price) in order to attract a buyer. Interest rate risk applies only to fixed-income investments that are sold prior to maturity. If fixed-income investments are held until they mature, the full amount of the principal is payable to the owner of the investment. Until the maturity date, regular interest payments are made to an investor.
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