In this video you will learn about Reinvestment risk. Reinvestment risk is the risk of investing the money that is received as coupon or prepayment at a lower rate. Reinvestment risk refers to the possibility that an investor will be unable to reinvest cash flows received from an investment, such as coupon payments or interest, at a rate comparable to their current rate of return. This new rate is called the reinvestment rate. There are two key characteristics of a bond that influence the quantum of reinvestment risk in the bond. They are the maturity of the bond and the coupon rate. Reinvestment risk is the chance that an investor will have to reinvest money from an investment at a rate lower than its current rate. This risk is most commonly found with bond investing, though it can apply to any cash-generating investment. Reinvestment risk is the chance that an investor will have to reinvest money from an investment at a rate lower than its current rate. Reinvestment risk is most commonly found with bonds. Noncallable bonds help stop reinvestment risk.
