CFA Practice Question

CFA Practice Question

Which of the following statements is (are) false?

I. As interest rates rise, the market value of fixed-rate bonds tends to decrease.
II. The market value of fixed-rate bonds will not change when interest rates change because the coupon is fixed for the life of the security.
III. The lower the coupon rate, the more sensitive a bond will be to changes in interest rates.
IV. The longer a bond's maturity, the more sensitive the bond will be to changes in interest rates.
A. II only.
B. III only.
C. I and IV.
Explanation: As interest rates rise, the market value of fixed-rate bonds will decrease if all other factors are held constant. Also, the lower the coupon the more sensitive a bond will be to changes in interest rates. This means that zero-coupon bonds will exhibit the most sensitivity to changes in rates. Finally, bonds with longer maturities will be more sensitive than shorter maturity bonds.

User Contributed Comments 1

User Comment
HolzGe1 arggh, "false"!
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