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CFA Level 1
Fixed Income

Reinvestment Risk Mitigation in Fixed Income Securities

Very Hard Fixed Income Securities Bond Features

In the evaluation of fixed income securities, one must consider various bond features that influence valuation and investment decisions. Among these features are call provisions, convertibility, and sinking funds. Each feature has unique implications for an investor's potential return and risk. Consider the following scenario: An investor is assessing two corporate bonds. One bond has a call provision allowing the issuer to redeem it prior to maturity, while the other bond features a sinking fund provision that requires the issuer to retire a portion of the bond issue over time. Which bond feature primarily mitigates the reinvestment risk for the bondholder during declining interest rate environments?

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