Which of the following statements regarding risk is(are) CORRECT? I. Interest rate risk is the variability...

Which of the following statements regarding risk is(are) CORRECT? I. Interest rate risk is the variability of a security’s returns resulting from changes in interest rates. II. Inflation risk, or purchasing power risk, is the variability of security returns caused by the decline in the purchasing power of invested dollars. I only II only Both I and II Neither I nor II

Solutions

Expert Solution

Both the statements are correct

Interest rate risk refers to the change in security prices due to change in interest rate term structure

Inflation risk is the change in security price in a rising inflation scenario where purchasing power of dollar would decrease

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

Which of the following statement regarding interest rate risk is true? A. Interest rate risk is...

Which of the following statement regarding interest rate risk is true? A. Interest rate risk is a positive relationship between bond price and interest rate. B. The longer the maturity, the lower the interest rate risk. C. The higher the coupon rate, the higher the interest rate risk. D. The higher the coupon rate, the lower the interest rate risk

Which of the following statements regarding the home mortgage interest expense deduction is correct? A. The...

Which of the following statements regarding the home mortgage interest expense deduction is correct? A. The limit on acquisition indebtedness depends on filing staus. B. Taxpayers who do not itemize deductions can still deduct home mortage interest as a from AGI deduction. C. The limit on acquisition indebtedness applies only in the year of aquisition. D. The limit on acquisition indebtedness applies to one (not multiple) loans.

Which of the following statements is CORRECT? a. An increase in the risk-free rate is likely...

Which of the following statements is CORRECT? a. An increase in the risk-free rate is likely to reduce the marginal costs of both debt and equity. b. The relevant WACC can change depending on the amount of funds a firm raises during a given year. Moreover, the WACC at each level of funds raised is a weighted average of the marginal costs of each capital component, with the weights based on the firm's target capital structure. c. The WACC is...

Which of the following statements concerning risk are correct? I. Systematic risk is measured by beta....

Which of the following statements concerning risk are correct? I. Systematic risk is measured by beta. II. The risk premium of a risky asset increases as diversifiable risk increases. III. Systematic risk is another name for nondiversifiable risk. IV. Diversifiable risks are systematic risks you cannot avoid. A.I and III only B.II and IV only C.I and II only D.III and IV only E.I, II, and III only

Which of the following statements regarding Tobin’s q is (are) correct? I. Ceteris paribus, if the...

Which of the following statements regarding Tobin’s q is (are) correct? I. Ceteris paribus, if the interest rate decreases, Tobin’s q increases. II. Ceteris paribus, if the replacement cost of capital increases, Tobin’s q decreases. Answer: _________ a) None of the above. b) I only. c) II only. d) I and II.

Which of the following statements is NOT CORRECT? a. When a bond's coupon interest rate is...

Which of the following statements is NOT CORRECT? a. When a bond's coupon interest rate is less than the market interest rate, the bond will sell at a value less than its par value and is known as a discount bond. b. Bonds are basically loans, so they usually make regular interest payments to the bondholders. The percentage of this interest payment relative to the bond's face value is called the coupon interest rate. c. For a fixed-rate bond, the...

which of the following statements is incorrect (least correct)? A. if the discount (or interest) rate...

which of the following statements is incorrect (least correct)? A. if the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the presents value if the same series. B. Disregarding risk, if money has time value, it is impossible for the present value of a given sum to be greater than its future value. C. Disregarding risks, if the present value of a sum is equal To ITs future value, either...

Which of the following statements is (are) correct?(x)If the risk-free rate is 10 percent and the...

Which of the following statements is (are) correct?(x)If the risk-free rate is 10 percent and the market risk premium is 4 percent, then the required return for the market is 6 percent.(y)Suppose the annual return on the S&P 500 Index was 8.4 percent. If the annual T-bill yield during the same period was 2.7 percent then the market risk premium during that period is 5.7 percent.(z)Suppose the annual return on the S&P 500 Index was 10.8 percent. If the market...

3. Which of the following statements is (are) correct? (x) If at some specific interest rate...

3. Which of the following statements is (are) correct? (x) If at some specific interest rate the quantity of money demanded is more than the quantity of money supplied, people will desire to sell interest-earning assets causing the interest rate to increase. (y) Ceteris paribus, as the price of bonds falls, the interest rate on bonds falls. (z) A decrease in the interest rate induces firms to borrow more, which will result in more investment spending and an increase in...

Which of the following statements related to the internal rate of return (IRR) are correct? I....

Which of the following statements related to the internal rate of return (IRR) are correct? I. The IRR method of analysis can be adapted to handle non-conventional cash flows. II. The IRR that causes the net present value of the differences between two project's cash flows to equal zero is called the crossover rate. III. The IRR tends to be used more than net present value simply because its results are easier to comprehend. IV. Both the timing and the...

Subjects