If an investor's holding period is longer than the term to maturity of a bond, he or she is exposed to___________ A) interest-rate risk. B) reinvestment risk. C) bond-market risk. D) yield-to-maturity risk.

Business · High School · Thu Feb 04 2021

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 B) reinvestment risk.

When an investor holds a bond for a period that is longer than the bond's term to maturity, the investor will receive the bond's principal upon maturity. However, the investor's holding period continues beyond this point, which means they will need to find a new investment opportunity for the returned principal. The risk associated with finding a new investment that can provide the same or higher rate of return as the matured bond is known as reinvestment risk. This is because future interest rates may have dropped since the original bond was purchased, and consequently, the investor may not be able to reinvest the principal at the same rate of return as the original bond.

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