97. The Dillinger State Bank has purchased a bond from the Interstate Manufactur

Question

97. The Dillinger State Bank has purchased a bond from the Interstate Manufacturing Company that has 15 years to maturity and has a coupon rate of 12.5%. Market interest rates have recently declined to 8% and the Dillinger State Bank is worried that the Interstate Manufacturing Company will retire the bond and issue new ones with a lower coupon rate. What type of risk is the Dillinger State Bank worried about? A) Credit risk B) Interest-rate risk C) Business- risk D) Call risk E Inflation risk SHOW WORK

Explanation / Answer

Answer: E) Inflation risk

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