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.

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Definitions:

Oligopoly

A market structure characterized by a small number of firms dominating the market, which can limit competition and lead to higher prices.

Oligopolistic Market

A market structure characterized by a small number of large firms dominating the market, leading to limited competition and possibly collusive behavior.

Homogeneous

Describes products or items that are uniform in nature and cannot be differentiated from one another.

Differentiated

Characterized by the process of distinguishing a product or service from others, to make it more attractive to a particular target market.