Which one of the following risks would a floating-rate bond tend to have less of as compared to a fixed-rate coupon bond?

Question

Quizplus · Accepted Answer

A floating-rate bond tends to have less interest rate risk than a fixed-rate coupon bond because the coupon rate of a floating-rate bond is regularly reset based on a benchmark interest rate such as LIBOR, which means the payments to the bondholders will adjust according to the prevailing interest rate. This feature reduces the duration of the bond and makes it less sensitive to changes in interest rates. Therefore, the interest rate risk of a floating-rate bond is lower than that of a fixed-rate coupon bond.

Which One of the Following Risks Would a Floating-Rate Bond