1 answer

​Please fill in the blank Short-term bonds are subject to​ ________ risk because proceeds must be...

Question:

​Please fill in the blank

Short-term bonds are subject to​ ________ risk because proceeds must be put into some future asset at an unknown interest rate.

a. reinvestment

b. liquidity

c. default

d. term


Answers

Option A.

  • Short term bond's are subject to reinvestment risk because proceeds must be put into some future asset at an unknown interest rate.
  • These risks are termed so as they have to be reinvested at a lower rate than before.
  • Reinvestment risks are those risks that proceed from the payment of interest rate.
  • The short term bonds face these reinvestment risks when the investor's investment period is longer than the time to maturity of the bond.
.

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