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The risk of interest rate changes causing the market price of a bond to rise or fall, and resulting in capital gains or losses for investors, is known as what?

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Solution

Alright, let's break this down.

First, let's understand what we're talking about. We're talking about a situation where the interest rates change, and because of that, the price of a bond goes up or down. This can lead to investors either making money (capital gains) or losing money (capital losses).

Now, this situation where the price of a bond changes because of interest rate changes is actually a type of risk. It's something that investors need to be aware of when they're deciding to buy or sell bonds.

This specific type of risk has a name. It's called "interest rate risk."

So, to sum up: the risk that changes in interest rates will cause the price of a bond to go up or down, leading to potential gains or losses for investors, is known as interest rate risk. It's like a roller coaster ride - the interest rates are the ups and downs of the track, and the bond price is the roller coaster car. The risk is that the car might go too high or too low because of the track's ups and downs.

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