Buying a bond with a duration equal to when the funds are needed
A)reduces reinvestment rate risk
B)increases impact of higher interest rates
C)reduces the impact of default
D)increases the bond's yield

Question

Quizplus · Accepted Answer

Matching the bond's duration with the time when funds are needed primarily reduces reinvestment rate risk, as it aligns the bond's sensitivity to interest rate changes with the investor's time horizon, minimizing the need to reinvest at potentially unfavorable rates.

Buying a Bond with a Duration Equal to When the Funds