Question

Which one is an incorrect statement? Group of answer choices a.Discount rate changes affect more the...

Which one is an incorrect statement?

Group of answer choices

a.Discount rate changes affect more the prices of bonds with longer maturity than shorter maturity

b.NPV is not affected by discount rate

c.Increasing discount rate will decrease the NPV

d.Decreasing discount rate will increase the benefit-cost ratio

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Homework Answers

Answer #1

The correct answer is option b.

Reason :

NPV is inversely proportional to discount rate. Higher the discount rate, lower will be the NPV and vice-versa.

The remaining statements are true because of the following reasons.

Option (a) is true because Bonds with longer maturity are more sensitive to discount rate changes than the ones with shorter maturity.

Option (c) is true since there exists inverse relationship between NPV and Discount rate.

Option (d) is also true because Decreasing discount rate will increase the benefit-cost ratio.

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