Which of the following is an example of reinvestment risk when investing in the bond market?

Question

Quizplus · Accepted Answer

Reinvestment risk refers to the risk that an investor may not be able to find a similar investment with the same return when their current investment matures. In option B, if interest rates on similar bonds have fallen, the investor may not be able to reinvest the coupon payments or the principal at the same rate, resulting in lower overall returns. Option A does not fit as an example of reinvestment risk because if interest rates have risen, the investor can reinvest at a higher rate. Option C also does not fit as an example because there is no change in interest rates. Option D is incorrect because all investments carry risk, including bonds.

Which of the Following Is an Example of Reinvestment Risk