Asked by Francine Fiscor on Jul 08, 2024
Verified
Which one of the following statements concerning floating-rate bonds is correct?
A) The market price of a floating-rate bond will always equal par.
B) Floating-rate bonds have coupon rates that generally can vary without limitations.
C) Floating-rate bonds generally contain a put provision at a pre-specified premium price.
D) Floating-rate bonds are issued by the government but not by corporations.
E) The market price of a floating-rate bond is less volatile than that of a comparable fixed rate bond.
Floating-Rate Bonds
Bonds with interest rates that adjust periodically based on a reference interest rate or index, protecting investors from interest rate risk.
Market Price
The price at which a product or service is traded in the competitive marketplace.
Put Provision
A clause found in certain securities that allows the holder to force the issuer to repurchase the security at specified prices before maturity.
- Determine the assortment of risks affiliated with bond investments and the methods for controlling these risks.
- Understand the pros and cons associated with various bond provisions from the perspectives of issuers and investors.
Verified Answer
TM
Tarida MargarethaJul 11, 2024
Final Answer :
E
Explanation :
Floating-rate bonds have coupon rates that adjust to reflect changes in interest rates, making their market prices less volatile compared to fixed-rate bonds. This adjustment mechanism helps keep the bond's price closer to its par value as interest rates change.
Learning Objectives
- Determine the assortment of risks affiliated with bond investments and the methods for controlling these risks.
- Understand the pros and cons associated with various bond provisions from the perspectives of issuers and investors.