SIE practice questionmediumReinvestment risk
Which bond has the least reinvestment risk?
- AA mortgage-backed security
- BA 20-year coupon bond
- CA callable bond
- DA zero-coupon bond✓ Correct answer
Explanation
Why D — A zero-coupon bond
Zero-coupon bonds pay no periodic interest, so there is nothing to reinvest prior to maturity. The other choices involve periodic cash flows that may face reinvestment risk.
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