Which of the Following Statements Is TRUE

question 34

Multiple Choice

Which of the following statements is TRUE?

• A)The price of bonds with lower coupon rates will be less sensitive to interest rates than the price of higher-coupon-paying bonds will be.
• B)The price of bonds with lower coupon rates will be more sensitive to interest rates than the price of higher-coupon-paying bonds will be.
• C)The longer the time to maturity, the less sensitive the bond price is to interest rates.
• D)The shorter the time to maturity, the more sensitive the bond price is to interest rates.

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Definitions:

EAR

Effective Annual Rate; the real return on an investment, taking into account the effect of compounding interest.

APR

Annual Percentage Rate, representing the yearly interest rate charged on borrowed money.

Total Payments

The cumulative amount of money paid out or expected to be paid out over the duration of an agreement or loan.

Present Value Factor

A factor used to calculate the present value of a future amount, reflecting the time value of money.