Which of the Below Statements Is TRUE

question 23

Multiple Choice

Which of the below statements is TRUE?

• A) Investing in bankers acceptances exposes the investor to market risk, which is the risk that neither the borrower nor the accepting bank will be able to pay the principal due at the maturity date.
• B) The market interest rates that acceptances offer investors reflect credit risk because BAs have lower yields than risk-free Treasury bills.
• C) The spread between bankers acceptance rates and Treasury rates represents a combined reward to investors for bearing the higher risk and relative illiquidity of the acceptance.
• D) The investor in a bankers acceptance is not exposed to credit risk

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Definitions:

Premium

The amount paid for an insurance policy or an additional amount above the nominal or face value of securities.

Par Value

The face value of a bond or stock as stated by the issuer, which does not necessarily reflect its market value.

Yield To Maturity

The expected complete return on a bond when retained through its entire lifespan.

Bond Rating

An assessment of the credit quality of a bond, typically issued by a rating agency, which indicates the likelihood of the bond issuer defaulting.