when interest rates decrease the price of a fixed rate bond increases an investor may decide to sell a bond for a profit holding onto the bond may result in not earning as much interest income from reinvesting the periodic coupon payments this is called reinvestment risk when interest rates decline interest payments on bonds also decrease a bond s yield to maturity declines reducing the total income received 
reinvested coupon paymentsinstead of making coupon payments to the investor some bonds reinvest the coupon into the bond so it grows at a stated compound interest rate when a bond has a longer maturity period the interest on interest significantly increases the total return and might be the only method of realizing an annualized holding period return equal to the coupon rate calculating reinvested interest depends on the reinvested interest rate reinvested coupon payments may account for up to 80 of a bond s return to an investor the exact amount depends on the interest rate earned by the reinvested payments and the time period until the bond s maturity date the reinvested coupon payment may be calculated by figuring the compounded growth of reinvested payments or by using a formula when the bond s interest rate and yield to maturity rate are equal 