All Other Things Being Equal the Interest Rate Risk of a Fixed

question 308

Multiple Choice

All other things being equal the interest rate risk of a fixed coupon bond is:

• A) greater, the higher the coupon and the longer the term
• B) greater, the lower the coupon and the longer the term
• C) lower, the lower the coupon and the shorter the term
• D) lower, the higher the coupon and the longer the term

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Definitions:

Bond Yields

The return an investor realizes on a bond, calculated as the annual interest payment divided by the bond's current market price.

Term Structure

The relationship between interest rates (or yields) and different maturities of debt securities, often depicted as a curve.

U.S. Treasuries

Debt securities issued by the U.S. Department of Treasury used to finance government spending as an alternative to taxation.

Interest Rates

Interest rates are the cost of borrowing money or the return for saving and depositing money, typically expressed as a percentage.