Which of the Following Statements Is CORRECT

question 83

Multiple Choice

Which of the following statements is CORRECT?

• A) Long-term bonds have less interest rate price risk but more reinvestment rate risk than short-term bonds.
• B) If interest rates increase, all bond prices will increase, but the increase will be greater for bonds that have less interest rate risk.
• C) Relative to a coupon-bearing bond with the same maturity, a zero coupon bond has more interest rate price risk but less reinvestment rate risk.
• D) Long-term bonds have less interest rate price risk and also less reinvestment rate risk than short-term bonds.
• E) One advantage of a zero coupon Treasury bond is that no one who owns the bond has to pay any taxes on it until it matures or is sold.

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Definitions:

Useful Life

The estimated time period that an asset is expected to be usable for the purposes of a business before it becomes obsolete.

Salvage Value

The estimated residual value of an asset after its useful life has ended, and it can no longer be used for productive purposes.

Depreciation Expense

The charge to expense a portion of the cost of a fixed asset over its useful life, representing wear and tear, obsolescence, or decline in value.

Constant Rate

A uniform pace or level that does not change over a given time period.