Which of the following statements is NOT CORRECT? All else equal, bonds with lon

ID: 2612809 • Letter: W

Question

Which of the following statements is NOT CORRECT?

All else equal, bonds with longer maturities have more interest rate (price) risk than bonds with shorter maturities.

If a bond is selling at its par value, its current yield equals its yield to maturity.

If a bond is selling at a premium, its current yield will be greater than its yield to maturity.

All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons.

If a bond is selling at a discount to par, its current yield will be less than its yield to maturity.

All else equal, bonds with longer maturities have more interest rate (price) risk than bonds with shorter maturities.

If a bond is selling at its par value, its current yield equals its yield to maturity.

If a bond is selling at a premium, its current yield will be greater than its yield to maturity.

All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons.

If a bond is selling at a discount to par, its current yield will be less than its yield to maturity.

Answer: The following statement is not correct,

All else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons.

Explantion: The interest rate risk depends on the following things,

1. The bond's time to maturity,

2. The coupon rate of the bond.

So It is not the size of the coupon but the rate of the coupons which determaines the sensitivity

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