Question
4) Explain (in no more than two paragraphs for each) which of the following statements are true or false. A. Suppose two bonds of equivalent
4) Explain (in no more than two paragraphs for each) which of the following statements are true or false.
A. Suppose two bonds of equivalent risk and maturity have different prices such that one is a premium bond and one is a discount bond. The premium bond must have a greater expected return than the discount bond.
B. All else equal, the holder of a fairly priced premium bond must expect a capital loss over the holding period.
C. The longer the time to maturity, the lower the security's price sensitivity to an interest rate change, ceteris paribus (all else equal).
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