Homework Answers
Answer: Options i and iv only are correct
i) This statement is correct
ii)Coupon payments will not change
iii) The effect of interest rate change will be more for long term
bonds than for short term bonds
iv)This statement is correct
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QULUI All else the same, if interest rates fall, then 1. bond prices will rise II....
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
5. Problem 7.05 (Bond Valuation) FO eBook Problem Walk-Through An investor has two bonds in his...
5. Problem 7.05 (Bond Valuation) FO eBook Problem Walk-Through An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 6%, 7%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity...
Which are true for after-tax cost of debt: 1. Increases as firm's bond increases II. Increases...
Which are true for after-tax cost of debt: 1. Increases as firm's bond increases II. Increases when market interest rate increases III. Increases as tax-rates decrease IV. Increases as bond prices increase Select one a. ll and Ill only b. I and Ill only C. II, III, and IV only d. 1, II, III, and IV O
The choices for the blanks, in order, are: fall/rise narrowing/widening higher/lower low/high rise/fall decreasing/increasing Corporate-Bond Issuers...
The choices for the blanks, in
order, are:
fall/rise
narrowing/widening
higher/lower
low/high
rise/fall
decreasing/increasing
Corporate-Bond Issuers Race to the Market as U.S. Yields Approach Record Low On April 25, 2011, the Fed announced that short-term interest rates would be kept near zero through late 2014. Because corporate bonds are indexed to Treasury yields and the Treasury yield hit nearly all-time lows, issuing conditions became conducive for investment-grade borrowers. Europe's debt crisis fueled the demand for relatively safer U.S. securities, and...
bond valuation
BOND VALUATIONAn investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year.Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be made on Bond L.What will the value of the Bond L be if the going interest rate is 4%? Round your...
Your portfolio contains 40% of Bond I, 20% of Bond II, 20% of Bond Ill and...
Your portfolio contains 40% of Bond I, 20% of Bond II, 20% of Bond Ill and 20% of Bond IV. Details of the four bonds are given below: $613.91 10-year zero coupon government bond, par value $1000, current price = II. 10-year zero coupon corporate bond, par value $1000, default premium= 2% III. 5 year 15 % coupon corporate bond, par value $1000, annual coupon payments, default premium 9% and YTM for similar government bond is 6% IV. 5 year...
The prices of low-coupon bonds tend to be less sensitive to a given change in interest...
The prices of low-coupon bonds tend to be less sensitive to a given change in interest rates than high coupon bonds, other things held constant. O O True False There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the bond ratings get lower. O True or False What's TRUE regarding long-term and short-term bonds (assume they have the same par...
Bonds are a form of ________, with bond prices and interest rates that move in _________...
Bonds are a form of ________, with bond prices and interest rates that move in _________ . a.equity; the same direction b.equity; opposite directions c.debt; the same direction d.debt; opposite directions e.equity/debt split; sometimes the same direction and sometimes opposite directions If the yield to maturity on a bond is greater than its coupon rate, then a.the corresponding bond price will be greater than its par (face) value. b.the corresponding bond price will be equal to its par (face) value....
An investor has two bonds in his portfolio that have a face value of $1,000 and...
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year a. What will the value of the Bond L be if the going interest rate is 7%, 8%, and 13%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made...
q9 An investor has two bonds in his portfolio that have a face value of $1,000...
q9
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 13% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 14%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be...
5. Problem 7.05 (Bond Valuation) FO eBook Problem Walk-Through An investor has two bonds in his portfolio that have a face value of $1,000 and pay an 11% annual coupon. Bond L matures in 12 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 6%, 7%, and 12%? Assume that only one more interest payment is to be made on Bond S at its maturity...
Which are true for after-tax cost of debt: 1. Increases as firm's bond increases II. Increases when market interest rate increases III. Increases as tax-rates decrease IV. Increases as bond prices increase Select one a. ll and Ill only b. I and Ill only C. II, III, and IV only d. 1, II, III, and IV O
The choices for the blanks, in
order, are:
fall/rise
narrowing/widening
higher/lower
low/high
rise/fall
decreasing/increasing
Corporate-Bond Issuers Race to the Market as U.S. Yields Approach Record Low On April 25, 2011, the Fed announced that short-term interest rates would be kept near zero through late 2014. Because corporate bonds are indexed to Treasury yields and the Treasury yield hit nearly all-time lows, issuing conditions became conducive for investment-grade borrowers. Europe's debt crisis fueled the demand for relatively safer U.S. securities, and...
Your portfolio contains 40% of Bond I, 20% of Bond II, 20% of Bond Ill and 20% of Bond IV. Details of the four bonds are given below: $613.91 10-year zero coupon government bond, par value $1000, current price = II. 10-year zero coupon corporate bond, par value $1000, default premium= 2% III. 5 year 15 % coupon corporate bond, par value $1000, annual coupon payments, default premium 9% and YTM for similar government bond is 6% IV. 5 year...
The prices of low-coupon bonds tend to be less sensitive to a given change in interest rates than high coupon bonds, other things held constant. O O True False There is an inverse relationship between bonds' quality ratings and their required rates of return. Thus, the required return is lowest for AAA-rated bonds, and required returns increase as the bond ratings get lower. O True or False What's TRUE regarding long-term and short-term bonds (assume they have the same par...
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 12% annual coupon. Bond L matures in 15 years, while Bond S matures in 1 year a. What will the value of the Bond L be if the going interest rate is 7%, 8%, and 13%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 15 more payments are to be made...
q9
An investor has two bonds in his portfolio that have a face value of $1,000 and pay a 13% annual coupon. Bond L matures in 19 years, while Bond S matures in 1 year. a. What will the value of the Bond L be if the going interest rate is 7%, 9%, and 14%? Assume that only one more interest payment is to be made on Bond S at its maturity and that 19 more payments are to be...
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