Which of the following statements are true? Check all that apply. Bonds with sim

Question

Which of the following statements are true? Check all that apply. Bonds with similar coupons will always have the same percentage price change, no matter the maturity. To minimize interest rate risk, an investor should buy long-term bonds. A decline in interest rates will lead to a decline in the price of an outstanding bond. Rising interest rates cause the value of outstanding bonds to decrease. Which of the following bonds has the highest reinvestment rate risk? O Noncallable 6% coupon bond O Zero-coupon bond 0 Callable 6% coupon bond 0 Callable 4% coupon bond

Explanation / Answer

Investors use market interest rate to discount all the cash inflow from the bond, so if market interest rate is higher than the coupon rate of the bond, bond current price will be lower than the par value and vice versa. So correct answer is D.

Rising interest rate cause the value of o/s bond to decrease.

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