At least to some extent, the effects of price risk and reinvestment risk on bonds offset one another (for investors who plan to sell before maturity).

Question

Quizplus · Accepted Answer

Price risk and reinvestment risk have opposite effects on bond values, but for investors who plan to sell before maturity, the impact of these risks can partially cancel each other out. As bond prices decline due to rising interest rates (price risk), the yield on reinvested coupon payments increases (reinvestment risk), which can partially offset the decline in value. Conversely, if bond prices rise due to falling interest rates, the yield on reinvested coupon payments may decrease, which can partially offset the gain in value.

At Least to Some Extent, the Effects of Price Risk