The Statement "Risk Requires Compensation" Implies That People

question 24

Multiple Choice

The statement "risk requires compensation" implies that people:

• A)Do not take risk
• B)Only accept risk when they absolutely have to
• C)Will only accept risk when they are rewarded for doing so
• D)Avoid risk at all cost

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Definitions:

Duration

A measure of the sensitivity of the price of a financial asset or liability to changes in interest rates, often used with bonds to assess interest rate risk.

Coupon Bond

A coupon bond is a debt security that pays the holder periodic interest payments based on a fixed interest rate until the bond matures, at which point the face value is paid to the bondholder.

Substitution Swap

Exchange of one bond for another more attractively priced bond with similar attributes.

Duration

An indicator that represents how the price of a bond or any similar type of debt is affected by interest rate fluctuations, displayed as a duration in years.