Which Set of Conditions Will Result in a Bond with the Greatest

question 7

Multiple Choice

Which set of conditions will result in a bond with the greatest volatility?

• A) A high coupon and a short maturity
• B) A high coupon and a long maturity
• C) A low coupon and a short maturity
• D) A low coupon and a long maturity
• E) A deferred call feature and a sinking fund.

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Definitions:

Revolving Credit Agreement

A financial arrangement allowing a borrower to withdraw, repay, and reborrow funds up to a specified credit limit.

Legal Obligation

A duty, established by law, contract, or agreement, which requires an entity or individual to perform or refrain from performing a certain action.

Depreciation

The reduction in the value of an asset over time, due in particular to wear and tear, typically used for tax and accounting purposes.

Noncash Charge

An expense reported in the income statement of a company that does not involve actual cash flow, such as depreciation or amortization.