Question

Please match each of the following terms to the description of best fit.

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	Reinvestment Rate Risk
	Default Risk
	Floating rate bond
	Zero Coupon Bond
	Consol Bond

A.	Risk associated with price fluctuations caused by interest rate changes
B.	This is the risk that a firm's cost of debt will fall and as a result reinvested coupon payments will earn less yield moving forward.
C.	Risk that the Borrower will not make payments on time or in full
D.	Coupon Payments typically follow a benchmark market rate
E.	All of the yield is determined by the difference in the price of the bond and the par value
F.	Can be assessed using the perpetuity formula

Answer 1

Reinvestment Rate Risk- B. This is the risk that a firm's cost of debt will fall and as a result reinvested coupon payments will earn less yield moving forward.

Default Risk-    C. Risk that the Borrower will not make payments on time or in full

Floating rate bond-    D. Coupon Payments typically follow a benchmark market rate

Zero Coupon Rate- E. All of the yield is determined by the difference in the price of the bond and the par value

Consol bond- F. Can be assessed using the perpetuity formula