Assuming All Else Is Constant, Which of the Following Statements

question 37

Multiple Choice

Assuming all else is constant, which of the following statements is CORRECT?

• A) for any given maturity, a 1.0 percentage point decrease in the market interest rate would cause a smaller dollar capital gain than the capital loss stemming from a 1.0 percentage point increase in the interest rate.
• B) from a corporate borrower's point of view, interest paid on bonds is not tax-deductible.
• C) price sensitivity as measured by the percentage change in price due to a given change in the required rate of return decreases as a bond's maturity increases.
• D) for a bond of any maturity, a 1.0 percentage point increase in the market interest rate (rd) causes a larger dollar capital loss than the capital gain stemming from a 1.0 percentage point decrease in the interest rate.
• E) a 20-year zero coupon bond has more reinvestment rate risk than a 20-year coupon bond.

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Definitions:

Internal Revenue Service

The U.S. federal agency responsible for the collection of taxes and enforcement of tax laws.

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