Interest vs. reinvestment rate risk Answer: e Diff: E
5. Which of the following statements is most correct?
a. All else equal, long-term bonds have more interest rate risk than short-term bonds.
b. All else equal, high-coupon bonds have more reinvestment rate risk than low-coupon bonds.
c. All else equal, short-term bonds have more reinvestment rate risk than do long-term bonds.
d. Statements a and c are correct.
e. All of the statements above are correct.
Interest vs. reinvestment rate risk Answer: c Diff: E
6. Which of the following statements is most correct?
a. Relative to short-term bonds, long-term bonds have less interest rate risk but more reinvestment rate risk.
b. Relative to short-term bonds, long-term bonds have more interest rate risk and more reinvestment risk.
c. Relative to coupon-bearing bonds, zero coupon bonds have more interest rate risk but less reinvestment rate risk.
d. If interest rates increase, all bond prices will increase, but the increase will be greatest for bonds that have less interest rate risk.
e. One advantage of zero coupon bonds is that you don’t have to pay any taxes until you sell the bond or it matures.
Share with your friends: | 
