Consider an investor with a 5-year investment horizon, holding a 3-year 5% coupon bond. What kind of risk is this investor exposed to?

Select one:

a. Reinvestment risk only; and she is concerned about potential interest rate decrease at the end of year 3

b. Reinvestment risk only; and she is concerned about the potential interest rate increase at the end of year 3

c. Liquidity risk only; and she is concerned about potential interest rate decrease at the end of year 3

d. Liquidity risk only; and she is concerned about the potential interest rate increase at the end of year 3

e. None of the options are correct.

Answer rating: 100% (QA)

Answer i The correct answer is first option is Reinvestment risk only and she is concerned about pot... View the full answer