A:

a. Call risk

b.
Reinvestment risk


c. Credit risk

d. Purchasing power risk



Answer: B

because call risk would apply more often to a bond purchased at a premium rather than a discount, and a bond issued by the U.S. Treasury has the lowest credit risk. While purchasing power risk is a possibility, reinvestment risk is the risk the investor is most likely to face. Since the bond was bought at a discount, it would be difficult to get a similar return on reinvesting dividends if purchasing bonds at par.



RELATED FAQS
  1. The risk an investor is most likely to face when investing in a discounted U.S. Treasury ...

    a. Call risk b. Reinvestment risk c. Credit risk d. Purchasing power risk Answer: Bbecause call risk would apply more often ... Read Answer >>
  2. What are the risks of investing in a bond?

    The most well-known risk in the bond market is interest rate risk - the risk that bond prices will fall as interest rates ... Read Answer >>
  3. The risk an investor is most likely to encounter when investing in a Standard & Poor’s ...

    A. Regulatory risk.B. Market risk.C. Liquidity risk.D. Business risk. Correct answer: BBusiness risk is minimized with a ... Read Answer >>
  4. What does it mean when a bond is selling at a premium? Is it a good investment?

    When the terms premium and discount are used in reference to bonds, they are telling investors that the purchase price of ... Read Answer >>
  5. What determines the price of a bond in the open market?

    Learn more about some of the factors that influence the valuation of bonds on the open market, and why bond prices and yields ... Read Answer >>
  6. What are some classes I can take to prepare for the Series 6 exam?

    Learn about how the risk-return tradeoff applies to bond yields, and the different types of risks associated with investing ... Read Answer >>
Related Articles
  1. Bonds & Fixed Income

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
  2. Bonds & Fixed Income

    Find The Right Bond At The Right Time

    Find out which bonds you should be investing in and when you should be buying them.
  3. Mutual Funds & ETFs

    Key Strategies To Avoid Negative Bond Returns

    It is difficult to make money in bonds in a rising rate environment, but there are ways to avoid losses.
  4. Retirement

    Analyzing The Best Retirement Plans And Investment Options: Bonds

    What they are: Debt securities in which you lend money to an issuer (such as a corporation or government) in exchange for interest payments and the future repayment of the bond’s face value. ...
  5. Retirement

    How to Pick the Right Bonds For Your IRA

    Learn about the best types of bonds to include in an IRA depending on an investor's risk tolerance. Understand the tax benefits of holding bonds in an IRA.
  6. Bonds & Fixed Income

    Understanding Bond Prices and Yields

    Understanding this relationship can help an investor in any market.
  7. Bonds & Fixed Income

    How To Invest In Corporate Bonds

    Understand the basics of corporate bonds to increase your chances of positive returns.
  8. Bonds & Fixed Income

    Savings Bonds For Income And Safety

    Bonds offer undeniable benefits to investors, including safety and tax advantages.
  9. Bonds & Fixed Income

    5 Fixed Income Plays After the Fed Rate Increase

    Learn about various ways that you can adjust a fixed income investment portfolio to mitigate the potential negative effect of rising interest rates.
  10. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
RELATED TERMS
  1. Reinvestment Risk

    The risk that future coupons from a bond will not be reinvested ...
  2. Reinvestment Rate

    The amount of interest that can be earned when money is taken ...
  3. Bond Discount

    The amount by which the market price of a bond is lower than ...
  4. Discount Bond

    A bond that is issued for less than its par (or face) value, ...
  5. Market Discount

    The difference between a bond's stated redemption price and its ...
  6. Long Bond

    The 30-year U.S. Treasury Bond. The long bond is so called because ...
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center