Q1-7. Which of the following statements are TRUE about coupon bonds? I. If there are two par bonds with the same coupon, market price and principal but with different maturity, the one with longer maturity should have higher duration. II. A junk bond (or deep discount bond) must pay high coupon in general as it contains high level of risk. III. If an investor tries to avoid reinvestment rate risk as much as possible, he/she should go for low coupon bonds instead of high coupon bonds. IV. If you hold a premium bond, it is always better for you to sell it before the maturity as the bond prices will go down throughout its lifespan. A. I and II only D. I and IV only C. II and III only B. I and III only E. I, II and IV only
Q1-7. Which of the following statements are TRUE about coupon bonds? I. If there are two par bonds with the same coupon, market price and principal but with different maturity, the one with longer maturity should have higher duration. II. A junk bond (or deep discount bond) must pay high coupon in general as it contains high level of risk. III. If an investor tries to avoid reinvestment rate risk as much as possible, he/she should go for low coupon bonds instead of high coupon bonds. IV. If you hold a premium bond, it is always better for you to sell it before the maturity as the bond prices will go down throughout its lifespan. A. I and II only D. I and IV only C. II and III only B. I and III only E. I, II and IV only
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Q1-7. Which of the following statements are TRUE about coupon bonds?
I. If there are two par bonds with the same coupon, market price and principal but with
different maturity, the one with longer maturity should have higher duration.
II. A junk bond (or deep discount bond) must pay high coupon in general as it contains high
level of risk.
III. If an investor tries to avoid reinvestment rate risk as much as possible, he/she should go
for low coupon bonds instead of high coupon bonds.
IV. If you hold a premium bond, it is always better for you to sell it before the maturity as
the bond prices will go down throughout its lifespan.
A. I and II only
D. I and IV only
C. II and III only
B. I and III only
E. I, II and IV only
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