Which of the Following Statements About Interest Rate and Reinvestment

question 11

Multiple Choice

Which of the following statements about interest rate and reinvestment rate risk is CORRECT?

• A) Variable (or floating) rate securities have more interest rate (price) risk than fixed rate securities.
• B) Interest rate price risk exists because fixed-rate debt securities lose value when interest rates rise, while reinvestment rate risk is the risk of earning less than expected when interest payments or debt principal are reinvested.
• C) Interest rate price risk can be eliminated by holding zero coupon bonds.
• D) Reinvestment rate risk can be eliminated by holding variable (or floating) rate bonds.
• E) All of the statements above are correct.

Analyze cash flows to ascertain the value of an investment.

Understand and differentiate between various compounding frequencies and their impacts on investments and loans.

Evaluate and compare different payment streams under varying interest rates to make informed financial decisions.

Identify the financial implications of mortgages, including total interest paid and balance calculation.

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