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:

Confidence Interval

A series of outcome numbers, from sample statistics, expected to contain within the unknown value of a population attribute.

Democratic Candidate

A person seeking or nominated for election representing the Democratic Party in the United States.

Confidence Interval

An interval estimate of a population parameter that is computed from sample data, indicating the reliability of an estimate.

Normally Distributed

Describes a dataset whose distribution forms a symmetric, bell-shaped curve when plotted, with most data near the mean.