Answer to Question #314531 in Finance for Comfort

Question

What is reinvestment rate (or price) risk? Which has more reinvestment risk, a 1-year bond or a 10 year bond?

Answer 1

Reinvestment risk is the possibility of an investor not been able to find similar cash flows from investments like coupon payments paying the same rate as the current rate of return.

1-year bond has more reinvestment risk than the 10 year bond because it has a short-term than the long -term bond and it is closer to maturity and has fewer coupon payments left.