Which of the Following Statements About Interest Rate and Reinvestment

question 10

Multiple Choice

Which of the following statements about interest rate and reinvestment rate risk is CORRECT?

• A) interest rate price risk exists because fixed-rate debt securities lose value when interest rates rise, while reinvestment rate risk is the risk of earning less than expected when interest payments or debt principal are reinvested.
• B) interest rate price risk can be eliminated by holding zero coupon bonds.
• C) reinvestment rate risk can be eliminated by holding variable (or floating) rate bonds.
• D) interest rate risk can never be reduced.
• E) variable (or floating) rate securities have more interest rate (price) risk than fixed rate securities.

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Definitions:

Disruptive Selection

Outcome of natural selection in which the two extreme phenotypes are favored over the average phenotype, leading to more than one distinct form.

Directional Selection

Outcome of natural selection in which an extreme phenotype is favored, usually in a changing environment.

Cladogram

In cladistics, a branching diagram that shows the relationship among species in regard to their shared derived characters.

Common Ancestor

An ancestral species from which two or more species evolved.