Which of the following statements is NOT CORRECT?
A) all else equal, bonds with longer maturities have more interest rate (price) risk than bonds with shorter maturities.
B) if a bond is selling at its par value, its current yield equals its yield to maturity.
C) if a bond is selling at a premium, its current yield will be greater than its yield to maturity.
D) all else equal, bonds with larger coupons have greater interest rate (price) risk than bonds with smaller coupons.
E) if a bond is selling at a discount to par, its current yield will be less than its yield to maturity.

Question

Quizplus · Accepted Answer

This statement is incorrect as bonds with smaller coupons have greater interest rate (price) risk as compared to bonds with larger coupons. The reasoning behind this is that, all else being equal, the larger coupons provide a higher income stream to the bondholder, reducing the impact of fluctuations in interest rates on the bond's price.

Which of the Following Statements Is NOT CORRECT