Series 7 Exam Question 111: Answer and Explanation

Question: 111

Which of the following securities has no reinvestment risk?

• A. Industrial Development Revenue bonds
• B. Treasury notes
• C. Zero-coupon bonds
• D. GO bonds

Correct Answer: C

Explanation:

C. Reinvestment risk is the additional investment risk investors take with dividends and interest received. Zero-coupon bonds are issued at a discount, mature at par value, and don't provide interest payments along the way. Since the investor doesn't receive any additional money to invest until maturity, zero-coupon bonds have no reinvestment risk.