Sources of risk to investors who purchase federal government bonds include
1. reinvestment rate risk
2. risk of inflation
3. interest rate risk

Question

Quizplus · Accepted Answer

Federal government bonds are subject to reinvestment rate risk, risk of inflation, and interest rate risk. Reinvestment rate risk occurs when the interest rates at which cash flows can be reinvested fall. The risk of inflation affects the purchasing power of the bond's future cash flows. Interest rate risk is the risk that the bond's value will change due to a change in the level of interest rates.

Sources of Risk to Investors Who Purchase Federal Government Bonds