Assuming the term structure is flat at 5%, look at the bonds below. (Bond 1)...
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Accounting
Assuming the term structure is flat at 5%, look at the bonds below.
(Bond 1) a 25 year zero coupon bond.
(Bond 2) a 10 year floating rate bond that pays LIBOR (benchmark interest rate).
(Bond 3) a 5 year 5% coupon bond.
(Bond 4) a 5 year 6% coupon bond.
Read these three statements.
(i) Bond 1 has a duration of 25 years.
(ii) Compared with Bond 4, Bond 3 is more sensitive to interest rate fluctuation.
(iii) Bond 2 has the shortest duration among all four bonds.
| a. Only (i) is correct. | ||
| b. Only (i) and (ii) are correct. | ||
| c. All are correct. | ||
| d. None is correct. |
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