Which of the Following Statements Is CORRECT

question 13

Multiple Choice

Which of the following statements is CORRECT?

• A) The time to maturity does not affect the change in the value of a bond in response to a given change in interest rates.
• B) You hold two bonds.One is a 10-year, zero coupon, bond and the other is a 10-year bond that pays a 6% annual coupon.The same market rate, 6%, applies to both bonds.If the market rate rises from the current level, the zero coupon bond will experience the smaller percentage decline.
• C) The shorter the time to maturity, the greater the change in the value of a bond in response to a given change in interest rates.
• D) The longer the time to maturity, the smaller the change in the value of a bond in response to a given change in interest rates.
• E) You hold two bonds.One is a 10-year, zero coupon, issue and the other is a 10-year bond that pays a 6% annual coupon.The same market rate, 6%, applies to both bonds.If the market rate rises from the current level, the zero coupon bond will experience the larger percentage decline.

---

Definitions:

Utility Function

A mathematical representation that ranks consumer preferences or satisfaction levels from consuming various goods or services.

Wealth

The total value of all financial and non-financial assets owned by an individual or entity, minus any debts owed.

Diminishing Marginal Utility

A principle stating that as a person increases consumption of a product, there is a decline in the added satisfaction that comes from consuming one additional unit.

Risk-Averse

Describes investors or consumers who prioritize minimizing the risk of loss over potentially achieving higher returns.