In: Categories » Legal and finance » Investing » The factors that affect the reinvestment risk of a security
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If an investor is to realize the required yield on an investment ina coupon bond, then he/she must be able to invest all of the coupon payments atthat same yield as well. This yield is called yield to maturity, which refers to the percentage rate of returnpaid on a bond if the investor buys and holds it to its maturity date. If thecoupon payments arrive when yields are lower, then they can only be invested atlower rates. This is reinvestment risk. It is the risk that proceeds available for reinvestment must be reinvested at alower interest rate than the instrument that generated the proceeds. Three factors affect this risk:
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