Question
Which of the following statements about interest rate and reinvestment rate risk is CORRECT? a. Interest rate (price) risk does not exist for floating-rate debt
Which of the following statements about interest rate and reinvestment rate risk is CORRECT?
a. | Interest rate (price) risk does not exist for floating-rate debt securities because they do not lose value when interest rates rise, while fixed-rate debt securities do not have reinvestment rate risk which is the risk of earning less than expected when interest payments or debt principal are reinvested. | |
b. | Reinvestment rate risk can be eliminated by holding variable (or floating) rate bonds. | |
c. | Interest rate (price) risk can be eliminated by holding zero coupon bonds. | |
d. | Interest rate risk can never be reduced. | |
e. | Variable (or floating) rate securities have less interest rate (price) risk than fixed rate securities. |
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