Which of the following is the greatest risk in holding a Provincial bond with face value $10000 which matures in five years,has a semi-annual 7% coupon,which you purchased for $12050 ?
A) The inflation risk because the real return may not beat inflation of two percent
B) Reinvestment risk that the coupons may not be able to be reinvested at the same return
C) Default risk if interest rates rise by two percent
D) Interest rate risk because interest rates may increase by one percent
Correct Answer:
Verified
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