The risk that interest rates will decline,and that decline will lead to a decline in the income provided by a bond portfolio as interest and maturity payments are reinvested,is called "reinvestment rate risk."

Question

Quizplus · Accepted Answer

Reinvestment rate risk refers to the risk that the income generated by a bond portfolio will decline if interest rates fall, and the proceeds from reinvesting coupon and principal payments are reinvested at a lower rate. This is a real risk that bond investors face, especially in a low-interest-rate environment.

The Risk That Interest Rates Will Decline,and That Decline Will