Which of the Following Is True of Interest-Rate Risk

question 76

Multiple Choice

Which of the following is true of interest-rate risk?

• A) It is the risk that the coupon rate for a bond will change, affecting current bondholders' coupon payments.
• B) It refers to the probability that a borrower will default on debt obligations.
• C) It is the risk that the face value of a bond will change before maturity.
• D) Individuals owning long-term bonds are exposed to greater interest-rate risk.

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Definitions:

Par Value

The legal capital assigned per share of a stock, which is a nominal value rather than indicative of the market price.

Discount

A reduction from the full amount or value of an item or security, often applied to bonds sold below their face value or to promote sales of products.

Coupon Interest Rate

The percentage of a bond's value that is paid out in interest to the bondholder annually, identical to the coupon rate.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, considering all interest payments and the repayment of principal.