What security will have more reinvestment rate risk a 5-year zero coupon bond or a perpetuity,...
What security will have more reinvestment rate risk a 5-year zero coupon bond or a perpetuity, why?
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The 5-year zero coupon bond will have more risk associated with the uncertainty of what the proceeds from this investment will earn in the future after the 5 year zero matures and is invested again in the market. |
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The perpetuity will have more risk associated with the certainty of what the proceeds from this investment will earn in the future. |
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The perpetuity will have more risk associated with the uncertainty of what the proceeds from this investment will earn in the future. |
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The 5-year zero coupon bond will have more risk associated with the changes in the interest rate and the subsequent change in the value of the zero coupon bond. |
Homework Answers
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What security will have more reinvestment rate risk a 5-year
zero coupon bond or a perpetuity,...
Which of the following statements is CORRECT? O 10-year, zero coupon bonds have more reinvestment risk...
Which of the following statements is CORRECT? O 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10 % coupon bonds OA 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5 % coupon bond (assuming all else equal). The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the...
k. What is interest reinvestment rate risk? Which bond has more interest rate reinvestment rate risk...
k. What is interest reinvestment rate risk? Which bond has more interest rate reinvestment rate risk (assuming a 10-year investment horizon)? g. What are the key features of a bond? h. How do you determine the value of a bond
4. (Zero Coupon Bonds) A zero coupon bond is a debt security that does not pay...
4. (Zero Coupon Bonds) A zero coupon bond is a debt security that does not pay interest but trades at a discount, and will pay its face value at maturity. Suppose a zero coupon bond matures to a value of $1000 in eight years. If the bond is yielding at 4% per annum, what is the purchase price of the bond? Suppose a 8-year coupon-paying bond is paying $40 a year, and has a face value of $1000 is selling...
Which of the following bond would have the least reinvestment risk? ____ A) An 8% coupon,...
Which of the following bond would have the least reinvestment risk? ____ A) An 8% coupon, 20-year Fannie Mae bond B) An 0% coupon, 5-year Treasury STPRIP C) An 4% coupon, 30-year GM subordinated debenture D) An 6% coupon, 10-year bond issued by TD Financial
Which of the following statements is CORRECT? Question 14 options: 10-year, zero coupon bonds have more...
Which of the following statements is CORRECT? Question 14 options: 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10% coupon bonds. A 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5% coupon bond (assuming all else equal). The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the...
What annual rate of return will you earn from a $1,000 zero coupon bond that matures...
What annual rate of return will you earn from a $1,000 zero coupon bond that matures in ten years if you pay $376 for it today? On the other hand, what is the most you would pay today for the same bond if you needed to earn an annual 7.5% from your investment?
Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6.3%. You hold...
Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6.3%. You hold the bond for five years before selling it a. If the bond's yield to maturity is 6.3% when you sell it, what is the annualized rate of return of your investment? b. If the bond's yield to maturity is 7.3% when you sell it, what is the annualized rate of return of your investment? c. If the bond's yield to maturity is 5.3% when...
Which has more interest rate risk a 2-year or 10 year bond, all else equal, why?...
Which has more interest rate risk a 2-year or 10 year bond, all else equal, why? the 2 year bond will have more interest rate because the latter cash flows are subjected to increased discounting associated with a given interest rate. the 10 year bond will have more interest rate because the cash flows in the future are subjected to increased discounting associated with a given interest rate. the 10 year bond will have more interest rate because the cash...
Part 1 A zero-coupon bond is a security that pays no interest, and is therefore bought...
Part 1 A zero-coupon bond is a security that pays no interest, and is therefore bought at a substantial discount from its face value. If the interest rate is 9% with annual compounding how much would you pay today for a zero-coupon bond with a face value of $1,700 that matures in 4 years? Please round your answer to the nearest hundredth. Part 2 A financial institution offers a "double-your-money" savings account in which you will have $2 in 4...
Assume that the market risk-free interest rate is 12.00%. Assume that a zero-coupon risk free bond,...
Assume that the market risk-free interest rate is 12.00%. Assume that a zero-coupon risk free bond, with maturity 2 years and 100 face value, is trading at 75. Which of the following is true? (a) By lending today for two years at the market rate, and short-selling the bond, you have an arbitrage. (b) By borrowing today for two years at the market rate, and buying the bond, you have an arbitrage. (c) By buying the bond today and investing...
Which of the following statements is CORRECT? O 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10 % coupon bonds OA 10-year, 10% coupon bond has less reinvestment risk than a 10-year, 5 % coupon bond (assuming all else equal). The total (rate of) return on a bond during a given year is the sum of the coupon interest payments received during the year and the change in the value of the bond from the beginning to the...
What annual rate of return will you earn from a $1,000 zero coupon bond that matures in ten years if you pay $376 for it today? On the other hand, what is the most you would pay today for the same bond if you needed to earn an annual 7.5% from your investment?
Suppose you purchase a 30-year, zero-coupon bond with a yield to maturity of 6.3%. You hold the bond for five years before selling it a. If the bond's yield to maturity is 6.3% when you sell it, what is the annualized rate of return of your investment? b. If the bond's yield to maturity is 7.3% when you sell it, what is the annualized rate of return of your investment? c. If the bond's yield to maturity is 5.3% when...
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