Question

select the true statement about interest rate risk.

it is the risk that a bonds coupon payment will fall if market interest rates fall.

interest rate risk is particularly problematic for investors who do not wish to sell their bonds.

it stems from the fact that bond prices and market interest rates are inversely correlated.

shorter-term bonds are more sensitive to interest rate risk than longer-term bonds.

Explanation:

1. Analyze the first option: A bond's coupon payment is fixed (based on its coupon rate and face value) and does not change with market interest rates. So this statement is false.
2. Analyze the second option: Interest rate risk affects the bond's price. If an investor doesn't want to sell the bond, they can hold it to maturity and receive the face value, so interest rate risk is less problematic for such investors. This statement is false.
3. Analyze the third option: Bond prices and market interest rates have an inverse relationship. When market interest rates rise, bond prices fall, and vice versa. Interest rate risk comes from this inverse correlation as it affects the bond's market value. This statement is true.
4. Analyze the fourth option: Longer - term bonds have more interest rate risk because their cash flows are exposed to interest rate changes for a longer period. Shorter - term bonds are less sensitive. So this statement is false.

Answer:

The true statement is: It stems from the fact that bond prices and market interest rates are inversely correlated.