Which of the Following Statements Is CORRECT

question 25

Multiple Choice

Which of the following statements is CORRECT?

• A) One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.
• B) Long-term bonds have less interest rate price risk but more
• Reinvestment rate risk than short-term bonds.
• C) If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate
• Risk.
• D) Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment
• Rate risk.
• E) Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds.

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Definitions:

Current Asset

Assets expected to be converted into cash, sold, or consumed within one year or the normal operating cycle of a business, whichever is longer.

Direct Method

A way of preparing the cash flow statement where actual cash flow information from the company's operations is used, as opposed to the indirect method which adjusts net income for accruals.

Accrued Interest

Interest that has been incurred but not yet paid or received at the end of the accounting period.

Maturity Date

The specified date on which the principal amount of a loan, bond, or other financial instrument is due to be paid in full.