When the investor does not know the interest rate at which the proceeds from a maturing investment can be reinvested, the risk is known as ____ risk.

Question

Quizplus · Accepted Answer

Reinvestment-rate risk refers to the risk that an investor faces when the proceeds from a maturing investment cannot be reinvested at the same rate. This risk is prevalent in fixed-income investments, such as bonds, where the coupon payments received from the bond are reinvested at the prevailing interest rates. If the reinvestment rate is lower than the coupon rate, the investor would not earn the expected return, resulting in reinvestment risk.

When the Investor Does Not Know the Interest Rate at Which