Final answer:
The statement that a zero-coupon bond has no reinvestment risk and duration equals the time remaining until maturity is True. Option a
Step-by-step explanation:
The statement that a zero-coupon bond has no reinvestment risk and duration equals the time remaining until maturity is True. This is because zero-coupon bonds do not pay periodic interest, eliminating the worry of reinvesting such interest at potentially lower rates.
Essentially, the bond's duration, a measure of interest rate risk that considers the time frame until cash flows are received, will equal its maturity for zero-coupon bonds, since all cash flows are received in a lump sum at maturity.
In terms of risk, when considering a bond with a fixed coupon rate, changes in the prevailing market interest rates affect the price at which the bond trades.
If the market interest rates rise above the bond's coupon rate, the bond's price will generally fall below its face value to compensate new investors for the lower interest payments compared to newly issued bonds at higher rates, thereby reaching a new present value that offers a competitive yield. Option a