Which of the Following Statements Is CORRECT

question 9

Multiple Choice

Which of the following statements is CORRECT?

• A) If two bonds have the same maturity,the same yield to maturity,and the same level of risk,the bonds should sell for the same price regardless of their coupon rates.
• B) All else equal,an increase in interest rates will have a greater effect on the prices of short-term than long-term bonds.
• C) All else equal,an increase in interest rates will have a greater effect on higher-coupon bonds than it will have on lower-coupon bonds.
• D) If a bond's yield to maturity exceeds its coupon rate,the bond's price must be less than its maturity value.
• E) If a bond's yield to maturity exceeds its coupon rate,the bond's current yield must be less than its coupon rate.

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Definitions:

Beta

A measurement of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Capital Market Line

A theoretical line representing the risk versus return of the market of all investable assets, assuming risk-free borrowing and lending rates.

Security Market Line

A representation of the capital asset pricing model which shows the relationship between risk (as measured by beta) and expected return of investments.

Expected Return

The anticipated profit or loss an investment is predicted to generate, acknowledging the potential for volatility and risk.