- CFA Exams
- CFA Exam: Level I 2021
- Study Session 14. Fixed Income (1)
- Reading 42. Fixed-Income Securities: Defining Elements
- Subject 4. Structure of a Bond's Cash Flows
CFA Practice Question
Investors are exposed to ______ when they purchase bonds with sinking fund arrangements.
B. more credit risk but less reinvestment risk
C. less credit risk but more reinvestment risk
A. more credit risk and more reinvestment risk
B. more credit risk but less reinvestment risk
C. less credit risk but more reinvestment risk
Correct Answer: C
User Contributed Comments 1
| User | Comment |
|---|---|
| Antoinepo | the reinvestment risk comes from the fact that when interest rate decrease the firms is more tempted to refinance (lower rate) and CALL the bonds faster then requiered which could cause lower than expected earnings for bond investors |