Assuming All Else Is Constant, Which of the Following Statements

question 11

Multiple Choice

Assuming all else is constant, which of the following statements is CORRECT?

• A)A 20-year zero coupon bond has more reinvestment rate risk than a 20-year coupon bond.
• B)For any given maturity, a 1.0 percentage point decrease in the market interest rate would cause a smaller dollar capital gain than the capital loss stemming from a 1.0 percentage point increase in the interest rate.
• C)From a corporate borrower's point of view, interest paid on bonds is not tax-deductible.
• D)Price sensitivity as measured by the percentage change in price due to a given change in the required rate of return decreases as a bond's maturity increases.
• E)For a bond of any maturity, a 1.0 percentage point increase in the market interest rate (rd) causes a larger dollar capital loss than the capital gain stemming from a 1.0 percentage point decrease in the interest rate.

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Definitions:

Grand Mean

The mean of means, calculated by taking the average of several group means, used in statistical analysis to summarize overall data.

Significance Level

See alpha level.

Type I Error

A statistical error occurring when a true null hypothesis is incorrectly rejected.

Type II Error

A statistical mistake occurring when a test fails to reject a false null hypothesis, incorrectly indicating no effect or difference when one actually exists.