Question

What is true regarding long-term and short-term bonds (assume they have the same par value and coupon rate)?

Answer 1

Option C stating long term bonds have higher reinvestment risk is true

This is because the long-term bonds have higher interest rates which lead to higher coupon amounts which further leads to an increase in reinvestment value resulting in higher reinvestment risk

The answer to the second question is. TRUE

The answer to the third question is FALSE

The prices of high coupon rate bonds tend to be less sensitive to a given change in interest rate.

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What is TRUE regarding long-term and short-term bonds (assume they have the same par value and coupon rate)?

Long-term bonds have lower interest rate risk.

Short-term bonds have a higher reinvestment risk.

Long-term bonds have a higher reinvestment risk.

Short-term bonds have higher interest rate risk.

There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns decrease as the bond ratings get higher.

True

False

The prices of high-coupon bonds tend to be more sensitive to a given change in interest rates than low-coupon bonds, other things held constant.

True

False

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