Question

The term used to denote the risk associated with the potential of returns on funds to be reinvested falling below the cost of those funds is:

a) Market risk
b) Reinvestment risk
c) Opportunity cost
d) Default risk

Answer 1

Reinvestment risk refers to the risk associated with the potential of returns on funds to be reinvested falling below the cost of those funds. It is particularly relevant for fixed-income investments where the interest rates may fluctuate over time.

Step-by-step explanation:

The term used to denote the risk associated with the potential of returns on funds to be reinvested falling below the cost of those funds is Reinvestment risk. Reinvestment risk is the risk that the returns earned from an investment will be reinvested at a lower rate of return, resulting in lower overall returns. This risk is particularly relevant for fixed-income investments, such as bonds or certificates of deposit (CDs), where the interest rates may fluctuate over time.