hello dears
Holding all other characteristics the same, the bond exposed to the lowest level of reinvestment risk is most likely the one selling at:
A par. B premium. C
discount.
what is the the answer and WHY?
Thank you all
I believe it is C (discount) since the interest rate is higher than the coupon rate so if you decide to sell your position, you can always reinvest the proceeds at a higher interest rate. Hence, the reinvestment risk is lower for a discount bond.
More to the point, the bond selling at a discount will give you the least amount of money, so you’ll have the least amount to reinvest, and, consequently, the lowest reinvestment risk.