Risk of fall in income due to fall in interest rates in future is classified as__________?
Correct answer: C. Reinvestment risk
- A. Income risk
- B. Investment risk
- C. Reinvestment risk
- D. Mature risk
Explanation
Reinvestment risk is the risk that future interest or principal receipts must be reinvested at lower interest rates, reducing future income. It is especially relevant when rates fall after a bond investment is made.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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