Reinvestment rate risk

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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

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