Which of the Following Statements Concerning Bonds and Risk Is

question 41

Multiple Choice

Which of the following statements concerning bonds and risk is true?

• A) Because the interest payments and maturing value are known, the only risk associated with investing in bonds is default risk.
• B) Zero coupon bonds are always more risky than bonds with high coupon rates because of the time value of money.
• C) Bonds are generally less risky than common stock because of the preference for debt over equity in the event of bankruptcy and liquidation.
• D) B-rated bonds are above average for risk, i.e., less risky than the average bond.

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Definitions:

Declining

A term indicating a decrease or reduction in quantity, quality, or importance over time.

Cost Function

A mathematical relationship describing how the cost of production changes with changes in the quantity of output produced.

Competitive Market

A market structure characterized by many buyers and sellers, none of whom can influence market price significantly on their own.

Marginal Cost Curve

A graphical representation showing how the cost of producing one more unit varies with the quantity produced.