Define What Is Meant by Interest Rate Risk

question 55

Essay

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?

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Definitions:

Economies of Scale

The price benefits that firms enjoy from the magnitude of their operations, where the cost of each output unit generally lessens as the scale of operations increases.

Unit Costs

The financial outlay for a company to manufacture, warehouse, and dispose of one unit of a specific item or service.

Output

Represents the total amount of goods or services produced by a firm or economy in a specific period.

Minimum Efficient Scale

The smallest level of production a firm can achieve while still taking full advantage of economies of scale in terms of cost per unit.