Question: What is the interest rate risk?
Answer: As name suggest it is depending on the prevailing interest rates in the market. Adverse change in interest rates can affect the bonds return. This is also known as curve risk.
Question: What are the interest rate risk types?
Answer: Interest Rate Risk has following types of the risk: - Level risk - Yield-curve risk.
Question: What do you mean by interest rate level risk?
Answer: As you know the price of a bond moves in the opposite direction of the change in interest rates. Suppose interest rates fall, the price of a fixed income security will rise.
Question: Can you explain, how does it affect if investor hold the bond for maturity with interest rate?
Answer: Suppose you hold a bond till maturity, if price change before maturity, you are not worried. But, if you want to sell the bond before the maturity date, and interest rates increases it means the realization of a capital loss (because price of the bond will drop). This risk is referred to as interest-rate risk which is one of the primary risks faced by an investor in the fixed income market.