Which of the Following Statements Is CORRECT

question 35

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) 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.
• C) A 10-year coupon bond would have more interest rate price risk than a 5-year coupon bond, but all 10-year coupon bonds have the same amount of interest rate price 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.
• E) A zero coupon bond of any maturity will have more interest rate price risk than any coupon bond, even a perpetuity.

---

Definitions:

Velocity of Money

The rate at which money circulates in the economy, typically measured as the ratio of GDP to the national money supply.

United States

A country located in North America, comprising 50 states, a federal district, five major self-governing territories, and various possessions.

Mid 1950s

Refers to the period from 1954 to 1956, a time characterized by post-WWII recovery, significant cultural shifts, and the early stages of the Cold War.

Stabilization Policy

Government policies aimed at stabilizing the economy by reducing fluctuations in production, employment, and prices.