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:

Quantity Sold

The total number of units of a product or service that have been sold within a specific time period.

Maximum Revenues

The highest amount of income that a company can generate from its sales before any deductions.