Reinvestment rate risk
Reinvestment rate risk is a risk that occurs when a short-term debt security must be “rolled over.” If interest rates have fallen then the reinvestment of principal will be at a lower rate, with correspondingly lower interest payments and ending value.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Reinvestment rate risk. Occurs when a short-term debt security must be “rolled over.” If interest rates have fallen then the reinvestment of principal will be at a lower rate, with correspondingly lower interest payments and ending value.
According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),
- Reinvestment rate risk. The risk that a decline in interest rates will lead to lower income when bonds mature and funds are reinvested.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
