In investment risk terminology, what does maturity risk signify?

Maturity risk refers to the potential for changes in the market value of an investment due to fluctuations in interest rates as it approaches its maturity date. As the maturity date nears, the price sensitivity to interest rate changes typically increases for fixed-income investments such as bonds. This is because longer-term instruments are exposed to interest rate risks over a more extended period, which can lead to greater price volatility if interest rates rise or fall. When interest rates go up, the existing bonds with lower rates typically lose value, and conversely, if rates drop, existing bonds can appreciate.

Understanding this concept is crucial for investors, especially when considering the portfolio's overall risk, since managing maturity risk can help mitigate potential losses related to changes in interest rates. The other options do not accurately capture the essence of maturity risk, focusing instead on other aspects of investment risk.