Reinvestment Risk on bonds

Posted in Finance, Accounting and Economics Terms, Total Reads: 881
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Definition: Reinvestment Risk on bonds

It is assumed that the coupons received before maturity is being reinvested when the yield of the bond is being calculated. That additional income from reinvestment (interest-on-interest) depends on the prevailing interest-rate levels at the time of reinvestment. Volatility in this reinvestment rate because of changes in market interest rates is called reinvestment risk.

Zero Coupon bonds have no reinvestment risk. Maturity of the bond and interest rate have significant impact on reinvestment risk. 




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