Short investment period: market price risk > reinvestment risk
Long investment period: reinvestment risk > market price risk
Could please someone explain in a detailed form why these happens… It will be most appreciated.
I know that market risk is the risk of a change in the price of my bond because there is a change in the interest rates. Reinvestment risk is the risk of the interest I will earn (or not earn) on the cash flows I will invest from my future coupon payments.
Bondholders in longer periods of investment would be receiving more coupons and most likely holding the bond to maturity (par) therefore their concern would be in reinvestment risk, what the can reinvest their coupon payments at.
Short term investors would not be receiving as many coupons and looking to sell their investment shortly, therefore they would face market risk of the interest rates increasing and the bond going down in value.
First time posting or answering, so go easy on me.
