SIE: 5.1.1.2.8. Reinvestment Risk

Taken from our SIE Online Guide

5.1.1.2.8. Reinvestment Risk

Reinvestment risk is the risk that interest earned from a bond cannot be reinvested at an interest rate equal to or higher than the coupon rate of the bond. When interest rates fall, an investor will have to reinvest the interest at the lower rate. Zero coupon bonds have no reinvestment risk because they have no periodic coupon payments. As discussed above, bonds that are callable are particularly exposed to interest rate risk. When interest rates decline, issuers may decide to reduce their interest payments by issuing new bonds at a lower rate and using the funds to call their callable bonds.

SUMMARY: Types of Risk
Risk	Securities Affected Most by this Kind of Risk	Strategies to Protect Against this Type of Risk
Market risk	• Stocks • High yield bonds	• Buy puts on broad based index • Short broad-based ETFs
Purchasing power risk	• U.S. Treasuries • Safe fixed-income securities, such as bonds and preferred stock	• Invest in stocks, REITs, and ADRs
Interest rate risk	• Bonds, especially those with high durations • Preferred stock	• Invest in stocks and convertible bonds
Credit/default risk	• Bonds, especially high-yield bonds	• Invest in safer bonds and stocks, and Treasuries
Business risk	• Stocks and bonds

+ Read More

More SIE Info

What are people saying?

Create an Account

Since you're reading about SIE: 5.1.1.2.8. Reinvestment Risk, you might also be interested in:

Series 50 - Nominal Yield

Series 66 - Preservation of Capital

Series 52 - Chapter Seven

Series 79 - Chapter Two

Series 22 - Preservation of Unusual Activity Reports

Please Enable Javascript
to view this content!

Site Login

TESTIMONIALS

What are people saying?

Great preparation for a first-time-go on my SIE exam! Used the audio book for my commutes, and the presentation was good addition to back up the book. I leveraged the exam simulator which was priceless in making me feel like I was prepared for the exam. And, once I got into the test, I was prepared enough that I wondered if the real exam was going to get more difficult at the end...? I felt confident and well-prepared. Will be ordering the top-off shortly! Thanks for a great product and outstanding support!

Jeff Hughes, Cambridge Investment Research. Fairfield, IA

Passed the SIE on my first attempt! Read the Kaplan study book and didn’t feel prepared enough to pass the exam. Stumbled upon Solomon exam prep and am so thankful I did. The exam simulator with the detailed answers did so much more to help me prepare. Went into the exam confident and passed. I’ll be back for the Series 7!

John N, Indianapolis IN

Excellent exam preparation! Passed on my 1st attempt! SIE EXAM DO LOTS OF PRACTICE EXAMS, AND FLASHCARDS. I found the real exam question easier than the Solomon's ones. Thank you!

Gil Malamut, Prudential. New York, NY

I studied for both the SIE and the Series 99 with Solomon. Both texts more than prepared me for the exam. The practice questions in particular were extremely helpful and were even a bit more challenging than the actual exams. After reading and annotating both textbooks twice and taking each quiz multiple times to the point that I received high scores on each, I was confident taking the exam. Although there were a few questions here and there on the exams that seemed to be outside the scope of the material and had some differently worded questions, the quiz questions were quite in line with the actual exam. I passed both exams my first try. I highly recommend Solomon study material.

Eric Cunningham PNC Pittsburgh, PA

THANK YOU SOLOMON! I passed the SIE in December and Series 6 in February. I do not have a background in finance. The study materials prepared me wonderfully for the exams. I used the study schedule - took a ton of practice exams and re-read the material. Also, the testimonials were very encouraging, so I had to share that I had the same amazing experience. Thank you so much!

Candace Chavez, Cetera Investment Services. Wimberley, TX

I'm not the best test taker. Solomon changed that. I was struggling on the quizzes and practice test. However, I passed the SIE on the first try. Took me less than one hour to complete. I felt very prepared.

Lamar Barnes, Washington D.C.