Which of the following sources of return is most likely exposed to interest rate risk for an investor who purchases a bo...
Which of the following sources of return is most likely exposed to interest rate risk for an investor who purchases a bond and quickly resells it the next day?
A. Reinvestment of coupon payments
B. Capital Gain or Loss
C. Redemption of principal
D. Coupon payments
Please explain why you selected your answer.
Homework Answers
Ans A. Reinvestment of coupon payments
Reinvestment of coupon payments is most likely exposed to interest rate risk for an investor who purchases a bond and quickly resells it the next day because the fixed rate bond is held to maturity, interest rate risk arises entirely from changes in coupon reinvestment rates.
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Which of the following sources of return is most likely exposed to interest rate risk for an investor who purchases a bo...
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