Question

The riskiness of an asset's return that results from interest rate changes is called [A]. The risk that a bond's future coupon payments may have to be invested at a rate lower than the bond's yield to maturity is called [B]. The average lifetime of a debt security's stream of payments is called [C]_. If an investor's holding period is longer than the term to maturity of a bond, he or she is exposed to [D]. The change in the bond's price relative to the initial purchase price is[E]. ( fill the blanks from the following: reinvestment risk; duration, interest rate risk; capital gain yield; current yield   )

Answer 1

The correct match is as follows:

The riskiness of an asset's return that results from interest rate changes is called - INTEREST RATE RISK

The risk that a bond's future coupon payments may have to be invested at a rate lower than the bond's yield to maturity is called - reinvestment risk

The average lifetime of a debt security's stream of payments is called - duration

If an investor's holding period is longer than the term to maturity of a bond, he or she is exposed to - current yield

The change in the bond's price relative to the initial purchase price is capital gain yield