Which of the Following Statements About Interest Rate and Reinvestment

question 9

Multiple Choice

Which of the following statements about interest rate and reinvestment rate risk is CORRECT?

• A) Variable (or floating) rate securities have more interest rate (price) risk than fixed rate securities.
• B) Interest rate price risk exists because fixed-rate debt securities lose value when interest rates rise, while reinvestment rate risk is the risk of earning less than expected when interest payments or debt principal are reinvested.
• C) Interest rate price risk can be eliminated by holding zero coupon bonds.
• D) Reinvestment rate risk can be eliminated by holding variable (or floating) rate bonds.
• E) Interest rate risk can never be reduced.

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Definitions:

Consumption Bundle

A set of goods or services that an individual or household consumes within a specific period.

Price of Spice

The specific cost associated with purchasing spice, which could vary based on market factors, quality, and availability.

Price of Whips

The cost at which whips are sold in the market, which can be influenced by factors like material costs and demand.

Price of Leather Jackets

The monetary value at which leather jackets are offered for sale in the market.