Reinvestment risk for a coupon bond is the risk of having to invest coupon income at a lower rate if interest rates fall, and Price risk is the risk of a capital loss if a bond has to be sold and interest rates rise. Both of these risks are measured by duration, which measures bond price sensitivity to changes in market rates that captures both types of risk.

Question

Quizplus · Accepted Answer

The statement is correct. Reinvestment risk and price risk are both measured by duration, which takes into account the bond's sensitivity to changes in market interest rates. Duration captures both types of risk, as it reflects the impact of changes in rates on both the coupon income and the bond's market value.

Reinvestment Risk for a Coupon Bond Is the Risk of Having