An investor holds a bond with an 8% coupon while current market rates for similar debt have fallen to 4%, causing the bond to trade at $108. Which provision poses the greatest reinvestment risk to this investor?

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Sinking funds require the issuer to retire debt even when prices are above par, meaning they will call bonds at $100. The investor loses the premium and must reinvest at lower current rates.

An investor holds a bond with an 8% coupon while current market rates for similar debt have fallen to 4%, causing the bond to trade at $108. Which provision poses the greatest reinvestment risk to this investor?

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