Homework Answers
Answer: The first option is correct.
A low coupon, long maturity bond will produce the largest price
change and thus will provide highest capital gain when interest
rates change.
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You predict that interest rates are about to fall. Which bond will give you the highest...
You expect interest rates to decline and wish to capitalize on the anticipated changes in bond...
You expect interest rates to decline and wish to capitalize on the anticipated changes in bond prices. To realize your maximum gain, all else constant, you should purchase _____bonds? a. short-term; low coupon b. short term;high coupon c long-term; zero coupon d long-term; low coupon e long-term; high coupon
QULUI All else the same, if interest rates fall, then 1. bond prices will rise II....
QULUI All else the same, if interest rates fall, then 1. bond prices will rise II. coupon payments will fall III. the percentage price change for short-term bonds will be greater than for long-term bonds IV. the percentage price change for high coupon bonds will be smaller than for low coupon bonds I and II only I, II, and IV only 1, II and Ill only III and IV only I and IV only
** Please show work or explain If interest rates fall from 8 percent to 7 percent,...
** Please show work or explain If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value? (If you are uncertain, do the examples yourself before answering!) a. A bond with 10 years to maturity, and a coupon rate of ZERO percent. b. A bond with 10 years to maturity, and a coupon rate of TEN percent. c. A bond with 5 years to maturity, and a...
6) Which of the following statements about bonds is true? A) If market interest rates are...
6) Which of the following statements about bonds is true? A) If market interest rates are above a bond's coupon interest rate, then the bond will sell below its par value. B) As the maturity date of a bond approaches, the market value of a bond will become more volatile. C) Bond prices move in the same direction as market interest rates. D) Long-term bonds have less interest rate risk than do short-term bonds.
Most economists predict a rise in interest rates. If you agree with them, you should _____________....
Most economists predict a rise in interest rates. If you agree with them, you should _____________. Switch from high-duration to low-duration bonds. Switch from low-duration to high-duration bonds. Switch from high-grade to low-grade bonds. Switch from low-coupon to high-coupon bonds.
Which set of conditions will result in a bond with the greatest volatility? a. A high...
Which set of conditions will result in a bond with the greatest volatility? a. A high coupon and a short maturity b. A deferred call feature and a sinking fund. c. A low coupon and a short maturity d. A high coupon and a long maturity e. A low coupon and a long maturity
In a period of historically low interest rates, what bond would most likely be called? a....
In a period of historically low interest rates, what bond would most likely be called? a. bond selling at a discount to par b. bond with coupon rate less than yield to maturity c. bond selling at a premium to par d. zero coupon bond
Suppose you own a bond issued by X. that has a Modified duration of 16 years....
Suppose you own a bond issued by X. that has a Modified duration of 16 years. Interest rates are currently 1.5% but you believe the Fed is about to decrease interest rates by 50 basis points (1 basis point = 0.0001) in order to stimulate the economy further. Your predicted percentage price change on this X bond is ________ A) -8.00% B) -5.62% C) 5.62% D) 8.00% 8．Market economists all predict a rise in interest rates. An astute bond manager...
Molly is an aggressive bond trader who likes to speculate on interest rate swings. Market interes...
Molly is an aggressive bond trader who likes to speculate on interest rate swings. Market interest rates are currently at 10.0% , but she expects them to fall 8.0% within a year. As a result, Molly is thinking about buying either a 25-year, zero-coupon bond or a 20-year, 8.5% bond. (both bonds have $1000 par value and carry the same agency rating.) Assuming that Molly wants to maximize capital gains, which of the two issues should she select? What if...
Stacy Picone is an aggressive bond trader who likes to speculate on interest rate swings. Market...
Stacy Picone is an aggressive bond trader who likes to speculate on interest rate swings. Market interest rates are currently at 10.0%, but she expects them to fall to 8.0% within a year. As a result, Stacy is thinking about buying either a 25-year, zero-coupon bond or a 20-year, 8.5% bond. (Both bonds have $1,000 par values and carry the same agency rating.) Assuming that Stacy wants to maximize capital gains, which of the two issues should she select? What...
QULUI All else the same, if interest rates fall, then 1. bond prices will rise II. coupon payments will fall III. the percentage price change for short-term bonds will be greater than for long-term bonds IV. the percentage price change for high coupon bonds will be smaller than for low coupon bonds I and II only I, II, and IV only 1, II and Ill only III and IV only I and IV only
6) Which of the following statements about bonds is true? A) If market interest rates are above a bond's coupon interest rate, then the bond will sell below its par value. B) As the maturity date of a bond approaches, the market value of a bond will become more volatile. C) Bond prices move in the same direction as market interest rates. D) Long-term bonds have less interest rate risk than do short-term bonds.
Stacy Picone is an aggressive bond trader who likes to speculate on interest rate swings. Market interest rates are currently at 10.0%, but she expects them to fall to 8.0% within a year. As a result, Stacy is thinking about buying either a 25-year, zero-coupon bond or a 20-year, 8.5% bond. (Both bonds have $1,000 par values and carry the same agency rating.) Assuming that Stacy wants to maximize capital gains, which of the two issues should she select? What...
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