Which of the Following Is the Greatest Risk in Holding

question 47

Multiple Choice

Which of the following is the greatest risk in holding a Provincial bond with face value $10000 which matures in five years,has a semi-annual 7% coupon,which you purchased for $12050 ?

• A)The inflation risk because the real return may not beat inflation of two percent
• B)Reinvestment risk that the coupons may not be able to be reinvested at the same return
• C)Default risk if interest rates rise by two percent
• D)Interest rate risk because interest rates may increase by one percent

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Definitions:

Inferior Good

A good for which demand decreases as consumer income rises, unlike normal goods, for which demand increases as consumer income rises.

Cross Elasticity of Demand

A measure of how the quantity demanded of one good responds to a change in the price of another good.

Soft Drinks

Non-alcoholic beverages that are typically carbonated and contain various flavorings and sweeteners.

Cross Elasticity of Demand

A measure of the responsiveness of demand for a good to a change in the price of another good, showing the degree of substitutability or complementarity between them.