Assuming All Else Is Constant, Which of the Following Statements

question 38

Multiple Choice

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

• A) 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.
• B) From a corporate borrower's point of view, interest paid on bonds is not tax-deductible.
• C) 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.
• D) For a bond of any maturity, a 1.0 percentage point increase in the market interest rate (r_d) causes a larger dollar capital loss than the capital gain stemming from a 1.0 percentage point decrease in the interest rate.
• E) A 20-year zero coupon bond has more reinvestment rate risk than a 20-year coupon bond.

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Definitions:

Magnet Wire

A type of insulated electrical wire typically made of copper or aluminum, used in making coils or windings in electrical components.

Insulation

Materials used to electrically isolate conductors or components, preventing unwanted current flow and ensuring safety.

Induction Motors

Electric motors that operate by inducing a rotating magnetic field in a conductive rotor, without physical contact, typically used in industrial applications.

Rotors

The rotating part of an electrical machine such as a motor or generator, which turns around an axis.