Which of the following statements is CORRECT 1. A $1,000 bond with $100 annual i

Question

Which of the following statements is CORRECT

1. A $1,000 bond with $100 annual interest payments that has 5 years to maturity and is not expected to default would sell at a discount if interest rates were below 9% and at a premium if interest rates were greater than 11%.

2. The price of a 20-year, 10% bond is less sensitive to changes in interest rates than the price of a 5-year, 10% bond.

3. A 10-year, 10% coupon bond has less reinvestment rate risk than a 10-year, 5% coupon bond (assuming all else equal).

4. 10-year, zero coupon bonds have more reinvestment rate risk than 10-year, 10% coupon bonds.

Explanation / Answer

2. The long haul bonds are not going to respond as rapidly as the 5yr bonds.

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