CFA Practice Question

There are 266 practice questions for this study session.

CFA Practice Question

Two amortizing bonds have the same maturity date and same yield to maturity. The reinvestment risk for an investor holding the bonds to maturity is greatest for the bond that is ______.
A. a zero-coupon bond
B. a coupon bond selling at a discount to par
C. a coupon bond selling at a premium to par value
Explanation: Because they have the same yield to maturity, we know that the bond selling for a premium has the higher coupon rate. Reinvestment risk refers to the risk that interest rates will decline, causing the future income expected from reinvesting coupon payments to decline. The more coupon interest being paid, the greater the reinvestment risk.

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