If an investor is concerned about interest rate risk, the investor should consider investing in a) Serial bonds. b)Sinking fund bonds. c)Convertible bonds. d) Floating rate bonds
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- . What is interest rate risk and what is the relation between interest rate risk and callable bonds. Explain with the help of an example of your own choice.How does one determine the required rate of return of a bond, the cash flows of a bond and the value of a bond? How do you determine if a bond is a good investment? Are long-term bonds riskier than short-term bonds? Explain and Discuss.Which of the following types of debt securities protect investors against interest rate risk? a. extendible notes b. floating rate bonds c. floating rate bonds and extendible notes d. original issue deep discount bonds
- Explain the effect Serial Bonds have on risk from both the perspective of the bond issuer and from the perspective of the bondholder.Describe Why Some Bonds are Risky: Default Risk: Risk Premium: Impact of Economic ConditionsIn general, If you consider investing a bond, how is the issuer and guarantor information relevant for the value of this bond?
- What is the relationship between bond prices and interest rates? Verbally describe how this relationship comes about. How can we use this relationship to estimate the value of a bond?To understand how bonds work and how they are priced, we have to have an understanding of what determines a bond’s price. One of the most important factors to consider when pricing bonds is the prevailing market rate of interest for bonds of similar risk in terms of duration and quality. In your response to this question, you should highlight the relationship between bond prices and interest rates and indicate what risks are considered when we price bonds. Include at least two citations that support your response.Why is it important to know the interest rate risk when investing in bonds? Does interest rate risk still matter if you hold your bond until maturity?
- Default risk on bonds can be evaluated by using:A. financial analysisB. bond ratingsC. estimates of potential losses on bondsD. a and bc. Which yield might investors expect to earn on these bonds, and why?Explain the use of a sinking-fund provision. How can it reduce the investor’s risk? What are protective covenants? Why are they needed? Explain the use of call provisions on bonds. How can a call provision affect the price of a bond? Explain the use of bond collateral, and identify the common types of collateral for bonds. What are debentures? How do they differ from subordinated debentures? What is a bond indenture? What is the function of a trustee with respect to the bond indenture? What are the advantages and disadvantages to a firm that issues low- or zero-coupon bonds?