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Question
The Dillinger State Bank has purchased a bond issued by the Interstate Manufacturing Company that has 15 years to maturity and has a coupon rate of 12.5%. Market interest rates have recently declined to 8% and the Dillinger State Bank is worried that the Interstate Manufacturing Company will retire the bond and issue new ones with a lower coupon rate. What type of risk is the Dillinger State Bank worried about?
A. Credit risk
B. Interest-rate risk
C. Business risk
D. Call risk
E. Inflation risk
Answer
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