Homework Answers
Price risk refers to the type of risk regarding the uncertainty of the value of the security or the underlying asset. The size of the coupon, however does not apply as the risk is applicable despite the size of the asset.
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Which of the following does not involve Price Risk? The frequency of coupons. The change in...
Which of the following does not involve Price Risk? The frequency of coupons. The change in...
Which of the following does not involve Price Risk? The frequency of coupons. The change in price when interest rates change. The current rate of return when coupons come due. The length of the bond. The size of the coupon.
12. Price risk and reinvestment rate risk Aa Aa Which of the following statements are true?...
12. Price risk and reinvestment rate risk Aa Aa Which of the following statements are true? Check all that apply. Bonds with similar coupons will always have the same percentage price change, no matter the maturity. Rising interest rates cause the value of outstanding bonds to decrease A decline in interest rates will lead to a decline in the price of an outstanding bond To minimize interest rate risk, an investor should buy long-term bonds. Which of the following bonds...
4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond...
4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond was sold at par (i.e., at a price of $1,000) three years ago, when the YTM on similar bonds was 8.0%. If there are 12 years until maturity, what would be the YTM to an investor who buys the bond today? (Hint: If the bond's price was $1,000 three years ago, when the market interest rate was 8.0%, what must be the coupon rate?...
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...
Interest Rate Risk. Both Bond Bill and Bond Ted have 6.2 percent coupons, make semiannual payments,...
Interest Rate Risk. Both Bond Bill and Bond Ted have 6.2 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 5 years to maturity, whereas Bond Ted has 25 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? Both bonds have a par value of $1,000. If rates were to suddenly fall by 2 percent instead, what would the...
4.Which one of the following statements about the approach to bond pricing is NOT true? Select...
4.Which one of the following statements about the approach to bond pricing is NOT true? Select one: A. To calculate a bond's price, one needs to calculate the present value of the bond's expected cash flows. B. The value, or price, of any asset is the future value of its cash flows. 6.Which one of the following statements is NOT true? Select one: A. The yield to maturity of a bond is the discount rate that makes the present value...
Consider a 3-year risk-free bond, which pays annual coupons. The coupon rate is 3.5% and the...
Consider a 3-year risk-free bond, which pays annual coupons. The coupon rate is 3.5% and the face value is 500. The bond is issued at time t=0, pays coupons at time t=1,2,3 and face value at time t=3. You purchase the bond at time t=0. While holding the bond, you do not reinvest the coupon payments. You resell the bond in one year, after getting the first coupon payment. The yield to maturity when you sell is 3.6%. What is...
What should be the price of a bond which does not make coupons payments, has a...
What should be the price of a bond which does not make coupons payments, has a one thousand dollar face value, and nine-year maturity, when the required rate of return is 3.5%? $722.65 $687.44 $703.19 $733.73 $781.20
What should be the price of a bond which does not make coupons payments, has a...
What should be the price of a bond which does not make coupons payments, has a one thousand dollar face value, and eight-year maturity, when the required rate of return is 4.5%? $722.65 $687.44 $703.19 $733.73 $781.20
Interest Rate Risk. Both Bond Bill and Bond Ted have 7 percent coupons, make semiannual payments, and are priced at par value.
Chapter 6 Exercise:16 Interest Rate Risk. Both Bond Bill and Bond Ted have 7 percent coupons, make semiannual payments, and are priced at par value. Bond Bill has 3 years to maturity, whereas Bod Ted has 20 years to maturity. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of Bond Bill? Of Bond Ted? If rates were to suddenly fall by 2 percent instead, what would the percentage change in the price of Bond...
Which of the following does not involve Price Risk? The frequency of coupons. The change in price when interest rates change. The current rate of return when coupons come due. The length of the bond. The size of the coupon.
12. Price risk and reinvestment rate risk Aa Aa Which of the following statements are true? Check all that apply. Bonds with similar coupons will always have the same percentage price change, no matter the maturity. Rising interest rates cause the value of outstanding bonds to decrease A decline in interest rates will lead to a decline in the price of an outstanding bond To minimize interest rate risk, an investor should buy long-term bonds. Which of the following bonds...
4. The current yield on bond B, which has semiannual coupons, is 7.08% and the bond was sold at par (i.e., at a price of $1,000) three years ago, when the YTM on similar bonds was 8.0%. If there are 12 years until maturity, what would be the YTM to an investor who buys the bond today? (Hint: If the bond's price was $1,000 three years ago, when the market interest rate was 8.0%, what must be the coupon rate?...
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...
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