Question $4$

$2$ pts

Select the statement that is most correct.

A firm with a low bond rating faces a less severe penaty when the Security Market Line $($SML$)$ is relatively steep than when it is not so sterp.

When a loan is amortized the largest portion of the periodic payment goers to reduce principal in the early years of the loan such that the accumblated interest can be ipread out over the life of the loan.

original maturity bond with $1$ vear $1$$: to maturicy. $($Assume that the bonds have equal default risk and

equal coupon rates.$]$

Tir pricas oftle frcoupon bonds tend to be less sensitive to a piven change in interest rates than lowcoupon bonds, other things equal and helf constant. This is because, all other things equal, a highcoupon bond has a shorter duration than a low$-$coupon bond.