when a bond is issued and interest rates increase an investor faces interest rate risk since bond prices fall when interest rates rise an investor holding a fixed rate bond may experience a capital loss if the bond is sold before its maturity date the longer the time period until maturity the greater the bond is subject to interest rate risk because a bondholder is given the face amount at maturity bonds nearing the maturity date have little interest rate risk 
investors can reduce interest rate risk by holding bonds of different durations and by hedging their investments with interest rate derivatives reinvestment risk