Which Statement Regarding Rate Risk Is True

question 78

Multiple Choice

Which statement regarding rate risk is true?

• A)A zero coupon bond of any maturity will have more interest rate price risk than any coupon bond, even a perpetuity.
• B)If their maturities and other characteristics were the same, a 5% coupon bond would have more interest rate price risk than a 10% coupon bond.
• C)A 10-year coupon bond would have more reinvestment rate risk than a 5-year coupon bond, but all 10-year coupon bonds have the same amount of reinvestment rate risk.
• D)If their maturities and other characteristics were the same, a 5% coupon bond would have less interest rate price risk than a 10% coupon bond.

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Definitions:

Linear Regression Model

A mathematical approach that fits a linear equation to observed data to model how a dependent variable changes in relation to one or more independent variables.

Standard Deviation

A statistic that measures the dispersion or variation of a set of values from their mean.

Confidence Interval

A range of values, derived from a data set, within which the true parameter value is estimated to lie with a certain level of confidence.

Expected Value

The weighted average of all possible values of a random variable, weighted by their respective probabilities.