Homework Answers
The Only statement that is Not true is Option C
The Interest rate risk refers to the fluctuation in the prices of the assets due to the change in the interest rate, The bonds which has greater maturity and lower coupon rate are more prone to interest rate risk because the bond price is the result of the discounted cash flows that the bond is going to generate, and the discount rate used is the Market interest rate, and the Longer maturity oeriod and the lower coupon rate will lead to higher discounting leading to negatively afffecting bond price.
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Which of the following statement is not true about interest rate risk? (Only one correct answer.)...
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...
Which of the following statements are correct concerning interest rate risk? I. The shorter the term,...
Which of the following statements are correct concerning interest rate risk? I. The shorter the term, the greater the interest rate risk. Il. The longer the term, the greater the interest rate risk. IIl The lower the coupon rate, the greater the interest rate risk. IV. The higher the coupon rate, the higher the interest rate risk. Select one: a. I and IV only Ob. I, II, Il and IV only O c. Il and IV only O d. I...
Which statement is correct? None of these. Long-term bonds have lower reinvestment rate risk than short-term...
Which statement is correct? None of these. Long-term bonds have lower reinvestment rate risk than short-term bonds. Long-term and short-term bonds are equally affected by a chance in interest rates. Long-term bonds have lower interest rate risk than short-term bonds. Long-term and short-term bonds from the same company have the same default risk. If Helga Inc. issued a bond that is currently selling for $950 has 7 years left until maturity and currently as a 9.4% yield to maturity. What...
Which one of the following is true? Interest Rate Risk is the risk that arises for...
Which one of the following is true? Interest Rate Risk is the risk that arises for bond owners from fluctuating interest rates. All other things being equal, the higher the coupon rate, the greater the interest rate risk. Interest Rate Risk is the risk that arises for bond owners from fluctuating interest rates. All other things being equal, the shorter the time to maturity, the lower the interest rate risk. O When comparing a 20-year bond versus a 1-year bond,...
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.
Which statement about bond prices is most accurate? Select one: a. For a premium bond the...
Which statement about bond prices is most accurate? Select one: a. For a premium bond the yield to maturity is less than the coupon rate b. With an interest rate increase the price rises more for long-term bonds than short-term bonds c. With an interest rate decline the price rises more for short-term bonds than long-term bonds d. For a discount bond the coupon rate is more than the yield-to-maturity e. The answers included are not correct
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...
Can you explain intuitively why the interest-rate risk is positively associated with maturity but negatively associated...
Can you explain intuitively why the interest-rate risk is positively associated with maturity but negatively associated with coupon rate of the debt instrument that you hold? How does the interest-rate risk vary with the level of interest rates? For example, during the recession when market interest rates are low, does the overall level of interest-rate risk become higher or lower? Imagine that you’re managing a portfolio of long- and short-term bonds. If you predict a rise in interest rates, how...
14.A company has 5-year bonds outstanding that pay an 7.5 percent coupon rate. Investors buying the...
14.A company has 5-year bonds outstanding that pay an 7.5 percent coupon rate. Investors buying the bond today can expect to earn a yield to maturity of 14.4 percent p.a.. What should the company's bonds be priced at today? Assume annual coupon payments and a face value of $1000. (Rounded to the nearest dollar) Select one: a. $765 b. $1279 c. $638 d. $1959 15.Jack is planning to buy a 9-year bond with semi-annual coupons and a coupon rate of...
Question 25 (Mandatory) (3.2 points) Which of the following is most correct? O In an efficient...
Question 25 (Mandatory) (3.2 points) Which of the following is most correct? O In an efficient market, investors will sell overvalued stock which will drive its price down. In an efficient market, investors will sell undervalued stock which will drive its price down. O In an efficient market, investors will buy overvalued stock which will drive its price down. None of these statements is correct. Question 14 (Mandatory) (3.2 points) Saved A bond's current yield is defined as: O the...
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...
Which of the following statements are correct concerning interest rate risk? I. The shorter the term, the greater the interest rate risk. Il. The longer the term, the greater the interest rate risk. IIl The lower the coupon rate, the greater the interest rate risk. IV. The higher the coupon rate, the higher the interest rate risk. Select one: a. I and IV only Ob. I, II, Il and IV only O c. Il and IV only O d. I...
Which one of the following is true? Interest Rate Risk is the risk that arises for bond owners from fluctuating interest rates. All other things being equal, the higher the coupon rate, the greater the interest rate risk. Interest Rate Risk is the risk that arises for bond owners from fluctuating interest rates. All other things being equal, the shorter the time to maturity, the lower the interest rate risk. O When comparing a 20-year bond versus a 1-year bond,...
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.
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...
Question 25 (Mandatory) (3.2 points) Which of the following is most correct? O In an efficient market, investors will sell overvalued stock which will drive its price down. In an efficient market, investors will sell undervalued stock which will drive its price down. O In an efficient market, investors will buy overvalued stock which will drive its price down. None of these statements is correct. Question 14 (Mandatory) (3.2 points) Saved A bond's current yield is defined as: O the...
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