Which One of the Following Statements Is Correct Concerning Interest

question 205

Multiple Choice

Which one of the following statements is correct concerning interest rate risk as it relates to bonds, all else equal?

• A) The shorter the time to maturity, the greater the interest rate risk.
• B) The higher the coupon rate, the greater the interest rate risk.
• C) For a bond selling at par value, there is no interest rate risk.
• D) The greater the number of semi-annual interest payments, the greater the interest rate risk.
• E) The lower the amount of each interest payment, the lower the interest rate risk.

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Definitions:

Carboxyl Group

A weakly acidic functional group; abbreviated —COOH.

Ionized

Refers to an atom or molecule that has gained or lost electrons, thus acquiring a charge and becoming an ion.

Nonionized

Referring to molecules that do not carry an electric charge due to loss or gain of electrons, affecting their solubility and reactivity.

Functional Group

A specific group of atoms within a molecule that is responsible for a characteristic chemical reaction of that molecule.