Which One of the Following Statements Is Correct According to Malkiel's

question 13

Multiple Choice

Which one of the following statements is correct according to Malkiel's Theorems?

• A) For a given change in a bond's yield to maturity, the shorter the term to maturity, the greater will be the magnitude of the change in the bond's price.
• B) The price of an outstanding bond is unaffected by changes in market interest rates.
• C) The size of the change in a bond's price increases at a constant rate given even incremental increases in a bond's yield-to-maturity even as the term to maturity lengthens.
• D) For a given change in a bond's yield-to-maturity, the absolute magnitude of the resulting change in the bond's price is directly related to the bond's coupon rate.
• E) For a given absolute change in a bond's yield-to-maturity, a decrease in yield will cause a greater change in the bond's price than will an increase in yield.

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Definitions:

Yield 10%

Represents the annual return on an investment, expressed as a percentage of the investment's cost. Here, the investment is expected to return 10% annually.

Bond Interest Expense

The cost that an issuer of bonds incurs over the bond term as interest payments to bondholders, as dictated by the interest rate of the bond.

Floating-rate Debt

A form of borrowing where the interest rate varies over time with market conditions, opposed to fixed-rate debt.

Market Value

Market value is the current price at which an asset or service can be bought or sold in the marketplace.