Zero coupon bonds eliminate interest rate risk in some cases by:
A) removing default risk.
B) removing marketability risk.
C) removing reinvestment rate risk.
D) removing call risk.

Question

Quizplus · Accepted Answer

Zero coupon bonds eliminate reinvestment rate risk because they do not pay periodic interest. Investors do not have to worry about reinvesting interest payments at potentially lower rates, as all the bond's value is realized at maturity.

Zero Coupon Bonds Eliminate Interest Rate Risk in Some Cases