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Question

Reinvestment risk would not occur if:

A Interest rate shifted over the time period the bond is held Correct Answer Incorrect Answer
B The bonds were callable Correct Answer Incorrect Answer
C Bonds are issued at par Correct Answer Incorrect Answer
D Only zero-coupon bonds are issued Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

Callable bonds have reinvestment risk because the principal can be prematurely retired. The higher the coupon, the higher the reinvestment risk, holding everything else constant. A bond is issued at par has nothing to do with reinvestment risk. So zero-coupon bonds will not have reinvestment risk. 

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