104 #
© 2014 Pearson Canada Inc.#
Which of the following is generally true of all bonds?
A) The longer a bond's maturity, the greater is the rate of return that occurs as a result of the
increase in the interest rate.
B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative
if interest rates rise.
C) Prices and returns for short-term bonds are more volatile than those for longer term bonds.
D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer
than the holding period.
Answer: B
Diff: 3 Type: MC Page Ref: 76
Skill: Recall
Objective List: 4.2 Discern among the ways of measuring the interest rate
Prices and returns for ____ bonds are more volatile than those for ____ bonds.
A) long-term; long-term
B) long-term; short-term
C) short-term; long-term
D) short-term; short-term
Answer: B
Diff: 1 Type: MC Page Ref: 76
Skill: Recall
Objective List: 4.2 Discern among the ways of measuring the interest rate
The riskiness of an asset's returns due to changes in interest rates is ____.
A) exchange-rate risk
B) price risk
C) asset risk
D) interest-rate risk
Answer: D
Diff: 1 Type: MC Page Ref: 77
Skill: Recall
Objective List: 4.2 Discern among the ways of measuring the interest rate
Interest-rate risk is the riskiness of an asset's returns due to ____.
A) interest-rate changes
B) changes in the coupon rate
C) default of the borrower
D) changes in the asset's maturity
Answer: A
Diff: 1 Type: MC Page Ref: 77
Skill: Recall
Objective List: 4.2 Discern among the ways of measuring the interest rate