Please fill in the blank Short-term bonds are subject to ________ risk because proceeds must be...
Please fill in the blank
Short-term bonds are subject to ________ risk because proceeds must be put into some future asset at an unknown interest rate.
a. reinvestment
b. liquidity
c. default
d. term
Homework Answers
Option A.
- Short term bond's are subject to reinvestment risk because proceeds must be put into some future asset at an unknown interest rate.
- These risks are termed so as they have to be reinvested at a lower rate than before.
- Reinvestment risks are those risks that proceed from the payment of interest rate.
- The short term bonds face these reinvestment risks when the investor's investment period is longer than the time to maturity of the bond.
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