Asked by Li-Yun Chang on Jul 02, 2024
Verified
Price volatility is greatest on which one of the following investments?
A) commercial paper
B) 20-year zero-coupon bonds
C) Treasury notes
D) Treasury bills
Zero-Coupon Bonds
Bonds that do not pay periodic interest payments and are instead issued at a substantial discount to their face value, with the face value being paid at maturity.
Price Volatility
The degree of variation in the price of a financial instrument over a certain period, indicating the risk or stability of the asset.
Treasury Notes
Medium-term interest-bearing securities issued by the U.S. government with maturity periods typically between 1 and 10 years.
- Identify the risks associated with investments, including market risk and purchasing power risk.
Verified Answer
DH
Darsheena Hubbard6 days ago
Final Answer :
B
Explanation :
Zero-coupon bonds have the highest price volatility as they offer no periodic interest payments and rely solely on the appreciation of the bond for returns. This means that even a small change in interest rates can have a significant impact on the bond's value. The other options, commercial paper, Treasury notes, and Treasury bills, have lower price volatility as they are generally short-term debt instruments with lower risk profiles.
Learning Objectives
- Identify the risks associated with investments, including market risk and purchasing power risk.