Which of the Following Is Not True About Bonds? in All

question 44

Multiple Choice

Which of the following is not true about bonds? In all of the statements,assume other things are held constant.

• A) Price sensitivity,that is,the change in price due to a given change in the required rate of return,increases as a bond's maturity increases.
• B) For a given bond of any maturity,a given percentage point increase in the interest rate (r_d)causes a larger dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
• C) For any given maturity,a given percentage point increase in the interest rate causes a smaller dollar capital loss than the capital gain stemming from an identical decrease in the interest rate.
• D) From a borrower's point of view,interest paid on bonds is tax-deductible.
• E) A 20-year zero-coupon bond has less reinvestment rate risk than a 20-year coupon bond.

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Definitions:

Range

The difference between the highest and lowest values in a data set, used as a measure of statistical dispersion.

Natural Causes

Factors that affect events or conditions based on processes inherent to the natural world, as opposed to human-made influences.

Assignable Causes

Factors identified as reasons for variation in a process, which can be isolated and where corrective action can be applied.

Process Capability Ratio

A statistical measure that evaluates the ability of a production process to produce output within specified limits.