Coupon Accepted Successfully!

 Reinvestment Risk
  • If interest rates decline, investors are forced to reinvest at lower yields.
  • Bonds with high coupons have greater risk.
  • Greatest risk is with callable bonds, where all or part of principal can be repaid in low interest rate environment.
  • Zero Coupon Bonds eliminate reinvestment risk.


How much reinvestment income needs to be generated to get a CAGR of 7% from 6%, 10 year treasury bond?


100*(1.035)20 = 198.98
Required reinvestment income = 198.98 – 100 – (3*20) = 38.98

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