Which of the following are negatively related to reinvestment risk?

A. Term to maturity
B. Coupon rate
C. Yield to maturity
D. None of the above

Correct Answer: D

Reinvestment risk is defined as the risk that the cash flows produced by a debt security will not be able to be reinvested at as high a yield as the debt security that created them. This type of risk is positively related to several factors, including yield to maturity, frequency of interest and principal repayments, and the term to maturity. For example, long-term bonds expose investors to more reinvestment risk than short-term bonds, holding everything equal. Conversely, bonds with high YTM expose investors to more reinvestment risk than bonds with low YTM, holding everything else equal. Another factor to consider in evaluating the reinvestment risk of a debt security is the frequency of cash flows produced by the security. For example, GNMA pass-through certificates pay monthly and force investors to reinvest these monthly proceeds at the YTM in order to maintain the optimal yield. GNMA pass-through certificates are amortizing securities, i.e., the cash flows produced by them are comprised of both interest and principal repayment. Amortizing securities repay principal gradually, and thus expose investors to more reinvestment risk than a debt security that pays its principal in full at maturity.