Asked by Peter Manyang Bichok on Jun 03, 2024
Verified
Sensitivity to interest rate risk is directly dependent on:
A) Time to maturity and the coupon rate.
B) The coupon rate and the future value
C) The future value and the yield.
D) The yield and the coupon rate.
E) The present value and the future value.
Interest Rate Risk
The potential for loss due to a change in interest rates affecting investment values or borrowing costs.
Time To Maturity
The remaining life of a debt instrument, at the end of which the principal is usually repaid.
Coupon Rate
The annual interest rate paid by a bond relative to its face value, expressed as a percentage.
- Identify the concept of interest rate risk and examine how the aspects of a bond, like maturity and coupon rates, determine its sensitivity to interest rate modifications.
Verified Answer
HG
Hadassah GonzalezJun 09, 2024
Final Answer :
A
Explanation :
Sensitivity to interest rate risk increases with longer time to maturity and lower coupon rates, as these factors make the bond's price more volatile in response to interest rate changes.
Learning Objectives
- Identify the concept of interest rate risk and examine how the aspects of a bond, like maturity and coupon rates, determine its sensitivity to interest rate modifications.