Match the following terms to the definition.
Interest Rate Risk
Reinvestment Rate Risk
Default Risk
Floating rate bond
Zero Coupon Bond
Consol Bond
A. |
Risk associated with price fluctuations caused by interest rate changes |
B. |
This is the risk that a firm's cost of debt will fall and as a result reinvested coupon payments will earn less yield moving forward. |
C. |
Risk that the Borrower will not make payments on time or in full |
D. |
Coupon Payments typically follow a benchmark market rate |
E. |
All of the yield is determined by the difference in the price of the bond and the par value |
F. |
Can be assessed using the perpetuity formula |
Please find below matched defintion of the given terms -
1. Interest Rate Risk - A. Risk associated with price fluctuations caused by interest rate changes
2. Reinvestment Rate Risk - B. This is the risk that a firm's cost of debt will fall and as a result reinvested coupon payments will earn less yield moving forward.
3. Default Risk - C. Risk that the Borrower will not make payments on time or in full
4. Floating rate bond - D .Coupon Payments typically follow a benchmark market rate
5. Zero Coupon Bond - E. All of the yield is determined by the difference in the price of the bond and the par value
6 Consol Bond - F. Can be assessed using the perpetuity formula
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