How many of the following statements are correct? As interest rates increase, longer term bonds will see their prices increase by more than shorter term bonds. Reinvestment rate risk occurs when interest rates fall and coupon payments are reinvested at these lower rates.

Reinvestment rate risk occurs when interest rates fall and coupon payments are reinvested at these lower rates.

Explanation:

One of the following statements is correct, which is that reinvestment rate risk occurs when interest rates fall and coupon payments are reinvested at these lower rates.

Reinvestment rate risk communicates the fact that coupon payments and earned interest income may not be reinvested at the prevailing market rate, hence the name 'reinvestment risk'

It is false that as interest rates increase, longer term bonds will see their prices increase by more than shorter term bonds because interest rates have an inverse relationship with bond price. As interest rate increases, bond rice falls and the risk of interest rate fluctuations is higher in longer term bonds because they face a higher probability of interest rate fluctuations, hence their price falls more than short term bonds.

As interest rates increase, longer term bonds will see their prices increase by more than shorter term bonds.

Reinvestment rate risk occurs when interest rates fall and coupon payments are reinvested at these lower rates.

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