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.