Which of the following statement is FALSE?Group of answer choicesCoupon is the stated interest payment made on a bond.Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.Short-term bonds have less interest rate risk than long-term bonds.When interest rates rise, bond prices fall.Ordinary shares are generally riskier assets than bonds.
Question
Which of the following statement is FALSE?Group of answer choicesCoupon is the stated interest payment made on a bond.Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.Short-term bonds have less interest rate risk than long-term bonds.When interest rates rise, bond prices fall.Ordinary shares are generally riskier assets than bonds.
Solution 1
To determine which statement is false, let's evaluate each option:
a. Coupon is the stated interest payment made on a bond. This statement is true. The coupon is the interest payment that the bondholder receives from the bond issuer.
b. Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value. This statement is false. Zero-coupon bonds are typically sold at a discount, meaning their price is less than their face value until they reach maturity.
c. Short-term bonds have less interest rate risk than long-term bonds. This statement is true. Short-term bonds are less sensitive to interest rate changes than long-term bonds, meaning they have less interest rate risk.
d. When interest rates rise, bond prices fall. This statement is true. There is an inverse relationship between interest rates and bond prices.
e. Ordinary shares are generally riskier assets than bonds. This statement is true. Ordinary shares, or common stocks, come with a higher level of risk compared to bonds.
Based on the evaluation, the only false statement is b. Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value.
Solution 2
The false statement is: "Prior to its maturity date, the price of a zero-coupon bond is always greater than its face value."
This is false because the price of a zero-coupon bond is typically less than its face value prior to its maturity date. This is because zero-coupon bonds are sold at a discount to face value and do not pay periodic interest. The bondholder receives the full face value of the bond only at maturity.
Similar Questions
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