CFA｜

问题如下：

Which of the following adverse consequences is most likely associated with extension risk?

选项：

A.

Investors must reinvest the proceeds at lower interest rates

B.

Higher interest rates reduce the value of the cash flows investors receive

C.

The prepayment option reduces the potential price appreciation for the bond

解释：

Correct Answer: B

Extension risk is the risk that the borrower might pay back the money borrowed more slowly than anticipated, extending the time of repayment and the maturity of the bond. For investors, this has one adverse consequence: Higher interest rates reduce the value of the cash flows investors receive. The payments the investors receive will be discounted at a higher interest rate, and the extension stretches out the payments the investors receive