Lenny D. answered • 05/19/19
Tutor
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Financial Professional with many years of Wall Street Experience
Interst rate risk occurs when there is a mismatch in payables and receivables. Banks have interest rate risk as they typically lend long term and borrow short term (rates on deposits). Suppose your daughter is going to college in two years. You buy 200,000 of 10 year treasury bonds to fund her expected college expenses. If interest rates ris from 5 % to 15% your bonds will be worth Substantially less than 200,000 and she will most likely have to graduate in 3 years.
