1. Two 5 year corporate Bonds (A and B) have the same credit quality and coupon...
1. Two 5 year corporate Bonds (A and B) have the same credit quality and coupon rate, but bond A is more liquid than bond B. Which bond should have a higher yield to maturity/ interest rate?
2. Diversification helps reduce risk. Hence if we keep adding stocks to our portfolio, the risk of the portfolio will eventually decrease to zero. (True or False)
Homework Answers
1. Bond B will have higher YTM as compared to Bond A. This is
because liquidity risk of Bond B is higher. Higher the risk higher
is the YTM of the bond.
2. False. Diversification will reduce risk to a finite value and
will not be 0 .
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1. Two 5 year corporate Bonds (A and B) have the same credit
quality and coupon...
Given that two bonds have the same maturity, yield to maturity and different coupon rate, which...
Given that two bonds have the same maturity, yield to maturity and different coupon rate, which of the following is true? Is it A.The high coupon bond will be sold for premium. B. The lower coupon bond will be sold for premium. C.The high coupon bond will have higher interest rate risk., D.The low coupon rate bond will have higher interest rate risk.?
An investor is building a portfolio of medium-quality, two-year, zero coupon corporate bonds. She uses time...
An investor is building a portfolio of medium-quality, two-year, zero coupon corporate bonds. She uses time value equations Opportunity Investment Model to analyze potential purchases. She measures project-specific-risk in future cash flows, and she believes that the project-risk-adjusted CF2 for a prospective bond is 96. The promised CF2 for this bond is $100. The annualized risk-free rate (rrf) for two-year bonds is 2%. If she thinks she should pay just $80 for the bond today, what annual discount rate (r)...
A.Zero Coupon Bonds A 7 year maturity zero coupon corporate bond has an 8% promised yield....
A.Zero Coupon Bonds A 7 year maturity zero coupon corporate bond has an 8% promised yield. The bond's price should equal B.The Fishing Pier has 6.40 percent, semi-annual bonds outstanding that mature in 12 years. The bonds have a face value of $1,000 and a market value of $1,027. What is the yield to maturity? C.Bond Yields Find the promised yield to maturity for a 7% coupon, $1,000 par 20 year bond selling at $1115.00. The bond makes semiannual coupon...
One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 6.2% annual coupon bonds at their...
One year ago Lerner and Luckmann Co. issued 15-year, noncallable, 6.2% annual coupon bonds at their par value of $1,000. Today, the market interest rate on these bonds is 5.5%. What is the current price of the bonds, given that they now have 14 years to maturity? $__________ If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 10.6%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus...
20. Suppose 10-year corporate bonds have a yield of 8%, and 10-year T-bonds yield 5%. The...
20. Suppose 10-year corporate bonds have a yield of 8%, and 10-year T-bonds yield 5%. The real risk-free rate is r* 1.80%, the inflation premium for 10-year bonds is IP = 2%, the default risk premium for corporate bonds is DRP -1% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP -(t-1) * 0.1%, wheret - number of years to maturity. What is the liquidity premium (LP) on corporate bonds?
If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 7.9%, the maturity risk...
If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 7.9%, the maturity risk premium on all 10-year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? a. 1.40% b. 1.46% c. 1.60% d. 1.30% e. 1.51%
If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 7.9%, the maturity risk...
If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 7.9%, the maturity risk premium on all 10 year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? a. 1.51% b. 1.30% C. 1.60% d. 1.46% e. 1.40%
Two bonds A and B have the same credit rating, the same par value and the...
Two bonds A and B have the same credit rating, the same par value and the same coupon rate. Bond A has 30 years to maturity and bond B has five (5) years to maturity. Please demonstrate your understanding of interest rates risk by answering the following questions : Discuss which bond will trade at a higher price in the market Discuss what happens to the market price of each bond if the interest rates in the economy go up....
a) ABC Ltd issues two different bonds, a 5-year semi-annual coupon bond and a 10-year zero...
a) ABC Ltd issues two different bonds, a 5-year semi-annual coupon bond and a 10-year zero coupon bond with the same yield to maturity. Explain which bond is subject to more interest rate risk.
1. Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued...
1. Even though most corporate bonds in the United States make coupon payments semiannually, bonds issued elsewhere often have annual coupon payments. Suppose a German company issues a bond with a par value of €1,000, 25 years to maturity, and a coupon rate of 7.1 percent paid annually. If the yield to maturity is 8.2 percent, what is the current price of the bond? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Bond...
20. Suppose 10-year corporate bonds have a yield of 8%, and 10-year T-bonds yield 5%. The real risk-free rate is r* 1.80%, the inflation premium for 10-year bonds is IP = 2%, the default risk premium for corporate bonds is DRP -1% versus zero for T-bonds, and the maturity risk premium for all bonds is found with the formula MRP -(t-1) * 0.1%, wheret - number of years to maturity. What is the liquidity premium (LP) on corporate bonds?
If 10-year T-bonds have a yield of 6.2%, 10-year corporate bonds yield 7.9%, the maturity risk premium on all 10 year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a zero liquidity premium for T-bonds, what is the default risk premium on the corporate bond? a. 1.51% b. 1.30% C. 1.60% d. 1.46% e. 1.40%
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