Fixed Income Q3

0. Which of the following statements are most likely to be correct about coupon payment structures? Statement I: Floating rate notes are affected more when interest rates increase and as a result have greater interest rate risk. Statement II: Bonds with step-up coupons offer bondholders some protection against rising interest rates. Statement III: A credit-linked coupon bond has a coupon that changes with the bond’s credit rating while a payment-in-kind coupon bond allows the issuer to pay interest in the form of additional amounts of bond issue rather than cash payment.

Answer
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Option : C
Explanation : Statements II and III are correct. Statement I is incorrect because floating rate notes are less affected when interest rate changes and therefore have less interest rate risk.

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