Which of the Following Is Not True About Bonds? in All

question 44

Multiple Choice

Which of the following is not true about bonds? In all of the statements,assume other things are held constant.

• A) Price sensitivity,that is,the change in price due to a given change in the required rate of return,increases as a bond's maturity increases.
• B) For a given bond of any maturity,a given percentage point increase in the interest rate (r_d)causes a larger dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
• C) For any given maturity,a given percentage point increase in the interest rate causes a smaller dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
• D) From a borrower's point of view,interest paid on bonds is tax-deductible.
• E) A 20-year zero-coupon bond has less reinvestment rate risk than a 20-year coupon bond.

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Definitions:

Globalization

The process by which businesses or other organizations develop international influence or start operating on an international scale.

Cultural Diversity

The existence of a variety of cultural or ethnic groups within a society or organization.

Power Distance

A cultural dimension that reflects the extent to which less powerful members of organizations and institutions accept and expect power to be distributed unequally.

Equality

The state or quality of being equal, especially in status, rights, and opportunities.