Which of the following would result in a decrease in bond prices? Question 8 options: Interest rates decrease. Time passes and a discount bond moves closer to maturity. The bond rating of a bond changes from BBB to C.
Q: As the market interest rate drops, a bond’s price _____.
A: Explanation : In simple words, the bond's coupon is the rate of return that the investor will get…
Q: A bond with a 7.3 yield has a modified duration of 5.4 and is trading at 985. If the yield decreases…
A: Given information: Duration (D)=5.4Yield (y)=7.3%Change in yield (△y)=-2%Price(P)=985
Q: 2) You find bond A priced to yield 6%, and a similar-risk bond B priced to yield 6.5%. If you expect…
A: Solution:- Yield means the return earned by the bond holder if he holds the bond until maturity.
Q: What makes duration of a bond different from its term to maturity? Answer must be limited to one…
A: Duration of a bond refers to the sensitivity of the price of a bond to the changes in the interest…
Q: A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a…
A: A bond is a debt capital utilized by entities and governments to raise finance for their purposes.…
Q: A general rule in bond valuation is that a decline in interest rates causes bond prices to a. rise…
A: Bond is a debt fixed interest bearing instrument that is issued by the company to raise funds from…
Q: a) Do you agree with the following statement, and explain why? “If two bonds have the same…
A: Answer: a) Bonds are the units that represent corporate debt and are issued by corporations. The…
Q: i. How would you expect the price of the callable bond to compare to that of the non-callable bond?…
A: Callable bond is a bond which can be redeemed before the period of maturity. It is also called as…
Q: 2. For each of the following situation, identify whether a bond would be considered a premium bond,…
A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: f the current yield of a bond goes down from 6.9% to 4.8%, by what percent does the market price…
A: In terms of finance, current yield can be defined as the return on the bond investment. The formula…
Q: The yield to maturity on a bond is A. below the coupon rate when the bond sells at a discount and…
A: Yield to Maturity : It is the expected rate of return that an investor in the bond may earn on his…
Q: which would experience greater percentage increase in price given a decrease in interest rates?
A: Computation of percentage increase:
Q: Calculating the risk premium on bonds The text presents a formula where (1+) = (1-pX1+i+x)+ p(0)…
A: In the given formula:(1+i)= (1-p)(1+i+x)+p(0)a) Rate of interest on risky bond , when the…
Q: Bond Relationships. Select one or more of the following phrases to complete the following sentences.…
A: Since you posted a question with multiple subparts, we will solve the first three subparts for you.…
Q: When interest rates ________, the prices of currently outstanding par-bonds ___________. Select…
A: When interest rates increases, the price of the bond reduces at low coupon rate where the bond is…
Q: Default risk refers to the value a bond investor will lose if the issuer defaults. It as a…
A: Risk is defined in monetary terms as the possibility that the actual return from a result or…
Q: Which of the following is correct? a. The YTM of a bond is its IRR b. Call premium rises as a bond…
A: YTM of bond is the rate of return that the bondholder will get if they hold bond till maturity and…
Q: Which type of bonds offer a higher yield? Callable bonds Noncallable bonds Answer the following…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Bond Relationships. Select one or more of the following phrases to complete the following sentences.…
A: The bond relationship includes the terms used in the bond valuation. It includes the interest rate,…
Q: The market price of a bond issued at a discount is the present value of its principal amount at the…
A: If a bond is sold at a lesser price than its face value is known as issue of bond at discount.
Q: An investor believes that a bond may temporarily increase in credit risk. Which of the following…
A: Credit risk shows that the borrower is unable to pay the required payment. A credit default swap…
Q: Which of the following is correct? Group of answer choices 1. The lower the price you pay for a…
A: An overpriced bond is one whose price is more than its value. Therefore, 2nd option is incorrect.…
Q: Bond analysts might be more interested in a bond's yield to call if A) the bond's yield to maturity…
A: Yield to call is the internal rate of return of cash flows of the bond with the current market…
Q: The method used to value a default-free zero coupon bonds (such as T-bills) requires that the…
A: In zero coupon bond there is no coupon available during life of bond. so these are called zero…
Q: Do you agree with the following statement, and explain why? “If two bonds have the same duration,…
A: Bonds are the financial market instruments that represent the debt taken by a corporation from the…
Q: he following statements is TRUE? emand for a bond declines when it becomes less liquid, decreasing…
A: A liquid asset is one that can be converted to cash quickly and easily. Liquid assets include cash,…
Q: Interest rate risk; a.is lesser for bonds with a longer term as compared to bonds with a shorter…
A: The risk of investment losses due to the shift in interest rates is known as interest rate risk. It…
Q: If a company's bonds are selling at a discount, then Select one: a. The current interest rates…
A: If a company sell bond at a discount then it means that the going interest rate is more than the…
Q: Bond Relationships. Select one or more of the following phrases to complete the following sentences.…
A: price of bond is inversely proportional to the interest rate.
Q: Which of the following situations would require an increase in the coupon rate for a bond selling at…
A: Bond can be sold at par, premium or discount
Q: Comment on the attractiveness of the bonds in two ways: a) How does the yield compare to the…
A: YTM of bond means ,yield per annum bond will pay upto the date of his maturity.
Q: . If interest rates suddenly rise by 3 percent, what is the percentage change in the price of these…
A: Bonds: These are debt instruments issued by the firm to raise debt capital. The issuer pays the…
Q: Over the term of the bonds, the amount of unamortized discount will a. be unaffected until the…
A: Bonds are those note which are traded in the public market and these are sold for more or less than…
Q: Which of the following statements is CORRECT? a. A bond is likely to be called if it sells at a…
A: Bonds are the secured instruments which generate fixed income for the investors in the form of…
Q: Which of the follwing statement is correct. As the credit risk of a bond increases: The YTM falls…
A: Relationship between the bond price and YTM is inverse. If YTM is increased bond price will be…
Q: he longer the term a bond has before it matures, ______________ will be the affect on its value due…
A: This pertains to sensitivity of bond price or bond value to changes in interest rates. Long term…
Q: how will the modified duretion of a floating coupon bond be compared to the modified duration of a…
A: A bond is a financial product that represents a loan that an investor makes to a borrower (usually a…
Q: All else the same, a will decrease the required return on a bond. Select one: O a. sinking fund O b.…
A: Required return on the bond is affected by several factors such as the credit rating of the bond and…
Q: Which are TRUE about the inverse relationship between price and yield: a. when interest rates rise;…
A: Bond price is the present value of the bond's future cash flows, prices of bonds are rise or fall…
Q: The market rate of interest for a bond issue that sells for more than its face value is a.…
A: Bonds payable are one of the sources of finance and are shown as liability. If the stated interest…
Q: Which of the following statements is TRUE regarding bonds? O A. At maturity, lenders repay a bond's…
A: Bond is the fixed income security which promises the holder future coupons.
Q: Refer to Chapter 10, page 567: Stated rate of interest versus the market rate of interest Required…
A: Bonds are a form of debt or liability being issued by the business, on which regular interest…
Q: If the bond issuance is realized, how will the interest and TL be respectively? A) decreases –…
A: Bond is an investment instrument in which an investor receives a fixed amount of money. The investor…
Q: Assuming a bond is issued at a discount, which of the following would definitely not change over the…
A: Bonds may be issued at par , premium or discount. Bond with coupon rates higher than the YTM will be…
Q: Which of the following is not an effect of a call provision? A. Issuer can refund the bond issue if…
A: A call provision is right of the issuer to redeem bonds before maturity
Q: if an investor expects interest rates to _______________ she/he will choose a bond with
A: A bond is a debt component issued by the entity for generating cash. It is recorded as non-current…
Which of the following would result in a decrease in
Question 8 options:
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Interest rates decrease. |
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Time passes and a discount bond moves closer to maturity. |
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The bond rating of a bond changes from BBB to C. |
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- The interest rate changes to i' in the second period. Evaluate the rates of return when you sell the bond after one period in the case of the change being (i) anticipated (ii) unanticipated. ? [P'As bonds approach their maturity dates, www A. prices will approach their par values. OB. the risk of a call will increase. OC. premiums or discounts will increase. O D. the bonds' prices will become more sensitive to changes in interest rates.The rate of return on a bond held to its maturity date is called the bond’syield to maturity. If interest rates in the economy rise after a bond hasbeen issued, what will happen to the bond’s price and to its YTM? Doesthe length of time to maturity affect the extent to which a given change ininterest rates will affect the bond’s price? Why or why not?
- 7-42 Spreadsheet Problem You have a portfolio of three bonds. The long bond will mature in 19 years and has a 5.5% coupon rate. The midterm bond matures in 9 years and has a 6.6% coupon rate. The short bond matures in only 2 years and has a 4% coupon rate. a. Construct a spreadsheet that shows the value of these three bonds and the portfolio when the discount rate is 5%. The spreadsheet can look something like this: A B D E 1 Now Change to 2 Interest rate = 5.00% 5.50% 3 Bonds Bond Price Now Price After Change Change in $ Change in % 4 Long bond 5 Midterm bond 6 Short bond 7 Total = $0.00 $0.00 図1. When the market interest rate rises, what happens to bond prices? Group of answer choices They rise They stay the same Cannot be determined They fall 2. A bond discount occurs when: Group of answer choices The price of a bond is above its face value. The price of a bond is above its maturity value. The price of a bond is below its face value. The price of the bond is equal to a bond's face value. 3. When a bond sells for a premium, Group of answer choices The price is above the face value The price is equal to the face value. The price is below the face value The price is below the maturity value. 4. A bond has a face value of $100,000 and a price of $97,000. The journal entry at the date of issuance would include: Group of answer choices A credit to Bond Discount of 3,000 A debit to Bond Discount of 97,000 A debit to Bond Discount of 3,000 A credit to Bond Premium of 3,000 5. A bond has a face…Question 4 Assuming a bond is issued at a discount, which of the following would definitely not change over the life of the bond? A The yield to maturity of the bond B The price of the bond C The coupon rate of the bond D The current yield of the bond
- As the market interest rate drops, a bond’s price _____. Group of answer choices falls remains unchanged rises fluctuates up and downThe time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates changeDuration is a measure of bond price sensitivity to interest rate changes. Question 13 options: True False
- The forward rate f(t1,12) of a bond, is the implicit interest rate in a future period between time t1 and t2. For example, assuming continuous time returns, if the discount rate from period 0 to t1 is: exp(-r t1), and from period 0 to 12 (greater than t1) is: exp(-r t2), then the forward rate f from t1 to t2 maintains the following no arbitrage relationship: exp(-r t1) exp(-f (t2-t1) exp(-r t2)). Suppose we observe the prices of a 14-year zero-coupon bond (with a face value of $93.31), where P(t1,t2) regans the price of the bond between t1 and 12, and a year 7-to-14 forward rate as follows:P(0.14) - $86.5496905000 and f(7,14) - 0.6074704253 %. Calculate the price of a 7-year zero-coupon, with face value $99.27: $82.9604 $96.0778 ✓(25 %) $96.2349 $82.1804Which of the following statements is/are most CORRECT? O 11 A yield curve depicts the relationship between bond's 'time to maturity and its yield to maturity. 2) A premium bond's price will decline over time if the required return remains unchanged. 3) A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.Interest rate risk; a.is lesser for bonds with a longer term as compared to bonds with a shorter term b.is the risk that the market interest rate may remain constant c.is the risk that a bond's coupon rate may change over time d.is zero on the date of maturity of a bond