Rate Level Risk

AAA

DEFINITION of 'Rate Level Risk'

A type of interest rate risk which asserts that the characteristics of interest rate fluctuation are variable (as opposed to constant) over a period of time. Although interest rates are expected to fluctuate over the period of an investment, the probability of an interest rate change is not always constant, nor is the magnitude of the volatility of interest rate changes.

INVESTOPEDIA EXPLAINS 'Rate Level Risk'

Generally speaking, it is impossible to predict with certainty the characteristics of a changing variable such as interests rates into the future. While it is possible to make reasonably accurate predictions, some amount of uncertainty still exits. This uncertainty represents a tangible risk, which must be incorporated into the price of an investment vehicle.

RELATED TERMS
  1. Earnings Allowance

    Calculation on the net funds available in a checking account ...
  2. Risk Averse

    A description of an investor who, when faced with two investments ...
  3. Risk-Return Tradeoff

    The principle that potential return rises with an increase in ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change ...
  5. Income Risk

    The risk that the income stream paid by a fund will decrease ...
  6. Reinvestment Risk

    The risk that future coupons from a bond will not be reinvested ...
Related Articles
  1. Forces Behind Interest Rates
    Economics

    Forces Behind Interest Rates

  2. Interest Rates And Your Bond Investments
    Investing Basics

    Interest Rates And Your Bond Investments

  3. Why do interest rates tend to have an ...
    Investing

    Why do interest rates tend to have an ...

  4. Lognormal and Normal Distribution
    Fundamental Analysis

    Lognormal and Normal Distribution

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center