Which of the Following Is Not True About Bonds? in All

question 53

Multiple Choice

Which of the following is not true about bonds? In all of the statements, assume other things are held constant.

• A) Price sensitivity, that is, the change in price due to a given change in the required rate of return, increases as a bond's maturity increases.
• B) For a given bond of any maturity, a given percentage point increase in the interest rate (rd) causes a larger dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
• C) For any given maturity, a given percentage point increase in the interest rate causes a smaller dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
• D) From a borrower's point of view, interest paid on bonds is tax-deductible.
• E) A 20-year zero coupon bond has less reinvestment rate risk than a 20-year coupon bond.

---

Definitions:

Physiological Reaction

A bodily response to a stimulus, which could be anything from an emotional event to a physical touch.

Cognitive Coping

Strategies that involve the conscious effort to solve personal and interpersonal problems, and seeking to master, minimize, or tolerate stress or conflict.

Hypothalamus

A region of the brain responsible for the regulation of certain metabolic processes and other activities of the autonomic nervous system, including hunger and temperature control.

Adrenal Glands

Small glands located on top of each kidney which produce various hormones including adrenaline and cortisol, involved in response to stress.