Answer: Reinvestment risk

## Explanation Zero-coupon bonds are NOT subject to **reinvestment risk** compared to coupon-bearing bonds of the same maturity. **Key Points:** - **Reinvestment risk** is the risk that coupon payments from a bond cannot be reinvested at the same rate as the bond's original yield-to-maturity - Zero-coupon bonds make no periodic coupon payments - they only pay the face value at maturity - Since there are no interim coupon payments to reinvest, zero-coupon bonds eliminate reinvestment risk - However, zero-coupon bonds are still subject to: - **Interest rate risk** (price sensitivity to interest rate changes) - **Credit risk** (risk of issuer default) - **Liquidity risk** (difficulty selling the bond in secondary markets) This makes zero-coupon bonds particularly attractive for investors who want to eliminate reinvestment risk while maintaining exposure to other bond risks.

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