Which of the following securities issued by the Federal government does not have reinvestment risk?

Agency Security
Agency security is debt security issued or guaranteed by an agency of the federal government or by a government-sponsored enterprise (GSE). These securities include bonds and other debt instruments. Agency securities are only backed by the "full faith and credit" of the U.S. government if they’re issued or guaranteed by an agency of the federal government, such as Ginnie Mae. Although GSEs such as Fannie Mae and Freddie Mac are government-sponsored, they’re not government agencies.

Average Maturity
Average maturity is the average time that a mutual fund's bond holdings will take to be fully payable. Interest rate fluctuations have a greater impact on the price per share of funds holding bonds with longer average lives.

Basis Points
A basis point (bps) is one one-hundredth of a percentage point (.01). One percent = 100 basis points. One half of 1 percent = 50 basis points. Bond traders and brokerage firms regularly use bps to state concise differences in bond yields. The Federal Reserve likes to use bps when referring to changes in the federal funds rate.

Benchmark
A benchmark is a standard against which investment performance is measured. For example, the S&P 500 Index, which tracks 500 major U.S. companies, is the standard benchmark for large-company U.S. stocks and large-company mutual funds. The Barclays Capital Aggregate Bond Index is a common benchmark for bond funds.

Bondholder
The owner of a bond is known as a bondholder. This may be an individual or institution such as a corporation, bank, insurance company or mutual fund. A bondholder is typically entitled to regular interest payments as due and return of principal when the bond matures.

Bond Rating
A bond rating is a method of evaluating the quality and safety of a bond. This rating is based on an examination of the issuer's financial strength and the likelihood that it will be able to meet scheduled repayments. Ratings range from AAA (best) to D (worst). Bonds receiving a rating of BB or below are not considered investment grade because of the relative potential for issuer default.

Call
In relation to bonds, a call is the issuer's right to redeem outstanding bonds before the stated maturity.

Call Protection
Call protection is a feature of some callable bonds that protects the investor from calls for some initial period of time.

Capital Gains Tax
Capital gains tax is the tax assessed on profits realized from the sale of a capital asset, such as stock, bonds or real estate.

Collateralized Mortgage Obligation (CMO)
A CMO is a bond backed by multiple pools (also called tranches) of mortgage securities or loans.

Commission
A commission is a fee paid to a brokerage firm or investment professional, as an agent of the customer, for executing a trade based on the number of bonds traded or the dollar amount of the trade.

Corporate Bond
A corporate bond is a bond issued by a corporation to raise money for capital expenditures, operations and acquisitions.

Convertible Bond
A convertible bond is a bond with the option to convert into shares of common stock of the same issuer at a pre-established price.

Coupon
A coupon, also called the coupon rate, is the interest payment made on a bond, usually paid twice a year. A $1,000 bond paying $65 per year has a $65 coupon, or a coupon rate of 6.5 percent. Bonds that pay no interest are said to have a "zero coupon."

Coupon Yield
Coupon yield is the annual interest rate established when the bond is issued. The same as the coupon rate, it is the amount of income you collect on a bond, expressed as a percentage of your original investment.

Current Yield
Current yield is the yearly coupon payment divided by the bond's price, stated as a percent. A newly issued $1,000 bond paying $65 has a current yield of .065, or 6.5 percent. Current yield can fluctuate: If the price of the bond dropped to $950, the current yield would rise to 6.84 percent.

Debenture
A debenture is an unsecured bond backed solely by the general credit of the borrower.

Debt Security
A debt security is any security that represents loaned money that must be repaid to the lender.

Discount
A bond discount is the amount by which a bond's market price is lower than its issuing price (par value). A $1,000 bond selling at $970 carries a $30 discount.

Diversification
Diversification is an investment strategy for allocating your assets available for investment among different markets, sectors, industries and securities. The goal is to protect the value of your overall portfolio by diversifying your investment risk among these different markets, sectors, industries and securities.

Face Value
The amount the issuer must pay to the bondholder at maturity is its face value, also known as par value.

Full Faith and Credit of the U.S. Government
Treasurys, savings bonds and debt securities issued by federal agencies are backed by the "full faith and credit" of the U.S. government, which is a promise by the U.S. government to pay all interest when due and redeem bonds at maturity.

Fixed-Rate Bond
A fixed-rate bond is a bond with an interest rate that remains constant or fixed during the life of the bond.

Floating-Rate Bond
A floating-rate bond is a bond with an interest rate that fluctuates (floats), usually in tandem with a benchmark interest rate during the life of the bond.

General Obligation Bond (GO)
A GO bond is a municipal bond that is secured by a governmental issuer's "full faith and credit," usually based on taxing power.

Government-Sponsored Enterprise (GSE)
A GSE is an enterprise that's chartered by Congress to fulfill a public purpose but is privately owned and operated, such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). Unlike bonds guaranteed by a government agency such as the Government National Mortgage Association (Ginnie Mae), those issued by a GSE are not backed by the "full faith and credit" of the U.S. government.

High-Yield Bond
A high-yield bond, also known as a “junk” bond, is a bond issued by an issuer that's considered a credit risk by a nationally recognized statistical rating organization, as indicated by a low bond rating (e.g., "Ba" or lower by Moody's Investors Services, or "BB" or below by Standard & Poor's Corporation). Because of this risk, a high-yield bond generally pays a higher return (yield) than a bond with an issuer that carries lower default risk.

Indenture
An indenture is a legal document between a bond issuer and a trustee appointed on behalf of all bondholders that describes all of the features of the bond, the rights of bondholders, and the duties of the issuer and the trustee. Much of this information is also disclosed in the prospectus or offering statement.

Investment-Grade Bond
An investment-grade bond is a bond whose issuer's prompt payment of interest and principal (at maturity) is considered relatively safe by a nationally recognized statistical rating organization as indicated by a high bond rating (e.g., "Baa" or better by Moody's Investors Service or "BBB" or better by Standard & Poor's Corporation).

Junk Bond
See high-yield bond.

Liquidity
Liquidity is the ease with which an asset or security can be sold without affecting its market price. Liquid investments can be bought and sold with relative ease and without a significant change in price. Liquidity declines whenever it becomes more difficult to trade an investment due to an imbalance in the number of buyers and sellers or because of price volatility.

Markdown
If you sell a bond, your brokerage firm, when acting as a principal, may offer you a price that includes a "markdown" from the price that it believes it can sell the bond to another dealer or another buyer. The markdown is the firm's compensation in the transaction.

Markup
When a brokerage firm sells you a bond in a principal capacity, it may increase or "mark up" the price you pay over the price the firm paid to acquire the bond. The markup is the firm's compensation in the transaction.

Maturity Date
A maturity date is the date when the principal amount of a bond, note or other debt instrument is typically repaid to the investor along with the final interest payment.

Mortgage-Backed Security
A mortgage-backed security is secured by home and other real estate loans.

Municipal Bond
A municipal bond is a bond issued by a state, city, county or town to fund public capital projects like roads and schools, as well as operating budgets. These bonds are typically exempt from federal taxation and, for investors who reside in the state where the bond is issued, from state and local taxes, too.

Non-Callable Bond
A non-callable bond, also called a “bullet,” is a bond that includes a feature stipulating that the bond cannot be redeemed (called) before its maturity date.

Non-Investment-Grade Bond
A non-investment-grade bond is a bond whose issuer's prompt payment of interest and principal (at maturity) is considered risky by a nationally recognized statistical rating organization, as indicated by a lower bond rating (e.g., "Ba" or lower by Moody's Investors Service or "BB" or lower by Standard & Poor's Corporation).

Note
A note is a short- to medium-term loan that represents a promise to pay a specific amount of money. A note might be secured by future revenues, such as taxes. Treasury notes are issued in maturities of two, three, five and 10 years.

Par Value
Par value is an amount equal to the nominal or face value of a security. A bond selling at par, for instance, is worth the same dollar amount at which it was issued, or at which it will be redeemed at maturity—typically $1,000 per bond.

Phantom Income
Interest reportable to the IRS that does not generate income, such as interest from a zero-coupon bond, is known as phantom income.

Prepayment Risk
Prepayment risk is the possibility that the issuer will call a bond and repay the principal investment to the bondholder prior to the bond's maturity date.

Premium
In relation to bonds, a premium is the amount by which a bond's market value exceeds its issuing price (par value). A $1,000 bond selling at $1,063 carries a $63 premium.

Primary Market
The market in which new issues of stock or bonds are priced and sold, with proceeds going to the entity issuing the security. From there, the security begins trading publicly in the secondary market.

Principal

1. For investments, principal is the original amount of money invested, separate from any associated interest, dividends or capital gains. For example, the price you paid for a bond with a $1,000 face value the time of purchase is your principal. Once purchased, the value of your bond holdings can fluctuate, meaning you can see an increase or decrease to your principal.
2. A brokerage firm that executes trades for its own accounts at net prices (prices that include either a mark-up or mark-down) is acting as the principal.

Prospectus
A prospectus is a formal written offer to sell securities that sets forth the plan for a proposed business enterprise, or the facts concerning an existing business enterprise, that an investor needs to make an informed decision.

Real Rate of Return
The real rate of return is the rate of return minus the rate of inflation. For example, if you are earning 6 percent interest on a bond in a period when inflation is running at 2 percent, your real rate of return is 4 percent.

Revenue Bond
A revenue bond is a type of municipal security backed solely by fees or other revenue generated or collected by a facility, such as tolls from a bridge or road, or leasing fees. The creditworthiness of revenue bonds tends to rest on the bond's debt service coverage ratio—the relationship between revenue coming in and the cost of paying interest on the debt.

Risk
Risk is the possibility that an investment will lose, or not gain, value.

Risk Tolerance
A person's capacity to endure market price swings in an investment is their risk tolerance.

Savings Bond
A savings bond is a U.S. government bond issued in face denominations ranging from $25 to $10,000.

Secondary Market
Markets where securities are bought and sold subsequent to their original issuance are known as secondary markets.

Separate Trading of Registered Interest and Principal of Securities (STRIPS)
STRIPS are Treasury Department-sanctioned bonds in which a broker-dealer is allowed to strip out the coupon, leaving a zero-coupon security.

Treasury Inflation-Protected Securities (TIPS)
TIPS are U.S. government securities designed to protect investors and the future value of their fixed-income investments from the adverse effects of inflation. Using the Consumer Price Index (CPI) as a guide, the value of the bond's principal is adjusted upward to keep pace with inflation.

Treasury
Treasurys are negotiable debt obligations that include notes, bonds and bills issued by the U.S. government at various schedules and maturities. Treasurys are backed by the "full faith and credit" of the U.S. government.

Treasury Bill
A Treasury bill, also called a T-bill, is a non-interest bearing (zero-coupon) debt security issued by the U.S. government with a maturity of four, 13 or 26 weeks.

Treasury Bond
A Treasury bond is a long-term debt security issued by the U.S. government with a maturity of 10 to 30 years, paying a fixed interest rate semiannually.

Treasury Note
A Treasury note is a medium-term debt security issued by the U.S. government with a maturity of two to 10 years.

Total Return
Total return is all money earned on a bond or bond fund from annual interest and market gain or loss, if any, including the deduction of sales charges and/or commissions.

Yield
Yield is the return earned on a bond, expressed as an annual percentage rate.

Yield Curve
A yield curve is a graph showing the relationship between yield (on the y- or vertical axis) and maturity (on the x- or horizontal axis) among bonds of different maturities and of the same credit quality.

Yield to Call (YTC)
YTC is the rate of return received by an investor who holds the bond to its call date and redeems the security at its call price. YTC assumes interest payments are reinvested at the yield-to-call date.

Yield to Maturity (YTM)
YTM is the overall interest rate earned by an investor who buys a bond at the market price and holds it until maturity. Mathematically, it's the discount rate at which the sum of all future cash flows (from coupons and principal repayment) equals the price of the bond.

Yield to Worst (YTW)
YTW is the lower yield of yield-to-call and yield-to-maturity. Investors of callable bonds should always do the comparison to determine a bond's most conservative potential return.

Yield Reflecting Broker Compensation
Yield reflecting broker compensation is the yield adjusted for the amount of the markup or commission (when you purchase) or markdown or commission (when you sell) and other fees or charges that you’re charged by your brokerage firm for its services.

Zero-Coupon Bond
A zero-coupon bond is a bond that doesn't pay a coupon. Zero-coupon bonds are purchased by the investor at a discount to the bond's face value (e.g., less than $1,000) and redeemed for the face value when the bond matures.