Detailed Answer
(d) The requirement is to identify what type of bond has
less interest rate risk. Answer (d) is correct because a floating
rate bond has a rate of interest that floats with changes in the
market interest rate. Therefore, the market price of the bond
does not fluctuate as widely. Answer (a) is incorrect because
serial bonds are those that are paid off in installments over the life
of the issue. Answer (b) is incorrect because sinking fund bonds
are those for which the firm makes payments into a sinking fund
to be used to retire the bonds by purchase. Answer (c) is incorrect
because convertible bonds are those that may be converted
into common stock.