Asked by Luisa Fernanda Bohorquez on Jul 14, 2024
Verified
All else the same, interest rate risk is highest for bonds with variable rate coupons.
Interest Rate Risk
The potential for investment losses due to fluctuations in the interest rates, affecting the value of interest-bearing assets like bonds.
Variable Rate Coupons
Bonds or other loans that have interest payments adjusted at periodic intervals based on a reference interest rate.
- Understand the components and dynamics of interest rate risk for bonds.
Verified Answer
LS
Lauren SeffensJul 16, 2024
Final Answer :
False
Explanation :
Interest rate risk is highest for bonds with fixed-rate coupons because their prices are more sensitive to changes in interest rates. Variable rate coupons adjust with interest rates, reducing sensitivity to interest rate changes.
Learning Objectives
- Understand the components and dynamics of interest rate risk for bonds.
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