Which of the following are generally true of all bonds?
A) The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate.
B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise.
C) Prices and returns for short-term bonds are more volatile than those for longer term bonds.
D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.

Question

Quizplus · Accepted Answer

This statement is generally true of all bonds - if interest rates rise after a bond has been issued, the bond's return (or yield) will be less than the market's interest rate, resulting in a negative return.

The other statements are not generally true of all bonds. Choice A is false because the relationship between a bond's maturity and rate of return depends on the specific characteristics of the bond and the interest rate environment. Choice C is false because short-term bonds typically have less interest rate risk and are therefore less volatile than long-term bonds. Choice D is false because falling interest rates generally result in capital gains for bonds, not losses.

Which of the Following Are Generally True of All Bonds