Which of the following statements is correct? a. The time to maturity does not affect the change
Question:
Which of the following statements is correct?
a. | The time to maturity does not affect the change in a bond's value in response to a given change in interest rates. | |
b. | You have two bonuses. One is a 10-year zero-coupon bond and the other is a 10-year bond that pays a 6% annual coupon. The same market rate is applied to both bonds, 6%. If the market rate increases from the current level, the zero coupon bond will experience a smaller percentage decline. | |
C. | The shorter the time to maturity, the greater the change in a bond's value in response to a given change in interest rates. | |
d. | The longer the term to maturity, the smaller the change in a bond's value in response to a given change in interest rates. | |
e. | You have two bonuses. One is a 10-year zero-coupon issue and the other is a 10-year bond that pays a 6% annual coupon. The same market rate is applied to both bonds, 6%. If the market rate increases from the current level, the zero coupon bond will experience the largest percentage drop. |
Understanding Financial Accounting
ISBN: 978-1118849385
1st Canadian Edition
Authors: Christopher Burnley, Robert Hoskin, Maureen Fizzell, Donald