Homework Answers
Answer: A normal yield curve is one in which longer maturity bonds have higher yield compared to shorter-term bonds due to the risks associated with time. If the yield curve is inverted, it is a sign of recession. It is a matter of concern when it comes to treasury bills, notes where short term bonds demand yield are higher than long term. Long term bonds have to see lower yield than short term bonds.
If the curve gets flat, the small difference between long term yield and short term yield.Here, it indicates that there is not much benefit in investing in long maturity bonds as yield will be comparatively same as that of short term bond yield.
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A normal yield curve is one in which longer maturity bonds have a higher yield compared...
Compared to bonds with shorter maturity, bonds with longer maturity respond dramatically to changes in interest...
Compared to bonds with shorter maturity, bonds with longer maturity respond dramatically to changes in interest rates. Bonds with a maturity that is as short as the holding period have interest-rate risk.
Which is true about the "duration" of bonds? A. The longer the term, the shorter the...
Which is true about the "duration" of bonds? A. The longer the term, the shorter the duration. B. The lower the yield, the shorter the duration. C. For zero-coupon bonds, the term is the duration. D. Duration is related to yield (or internal rate of return) of a bond. Regarding bonds in the secondary market... A. their prices are unrelated to the prevailing interest rate environment. B. prices of bonds with more time to maturity are less sensitive to the...
Consider the file named yield curves. If the current yield curve is the one represented by Yield Curve 1 (Normal), then...
Consider the file named yield curves. If the current yield curve is the one represented by Yield Curve 1 (Normal), then we can guess that the bond market participants expect the one-year interest rates one year hence and two years hence to be percent and percent, respectively. On the other hand, if the yield curve was the inverted one, we could conclude that the bond market participants expect the one-year interest rates one year hence and two years hence to...
5. Risks of investing in bonds Aa Aa The higher the risk of a security, the...
5. Risks of investing in bonds Aa Aa The higher the risk of a security, the higher its expected return will be. A bond's risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The following graph shows the relationship between interest rates and maturity for three security classes: US Treasury securities (USTs), AA-rated corporate bonds, and BBB-rated corporate bonds. Use the dropdown menus to label each security's profile correctly: YIELD...
If the Treasury yield curve is downward sloping, how should the yield to maturity on a...
If the Treasury yield curve is downward sloping, how should the yield to maturity on a 13-year Treasury coupon bond compare to that on a 1-year T-bill? a. The vield on a 13-year bond would be less than that on a 1-year bill. b. The yield on a 13-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium. c. It is impossible to tell without knowing the coupon rates of the...
If the yield curve is downward sloping, what is the yield to maturity on a 10-year...
If the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury coupon bond, relative to that on a 1-year T-bond? and why? . The yield on the 10-year bond is less than the yield on a 1-year bond The yield on a 10-year bond will always be higher than the yield on a 1-year bond because of maturity premiums. It is impossible to tell without knowing the coupon rates of the bonds. The yields...
Which of the statements (I-IV) is (are) most likely FALSE: I. When shorter maturity treasuries are...
Which of the statements (I-IV) is (are) most likely FALSE: I. When shorter maturity treasuries are yielding less than longer maturity treasuries, the yield curve is considered to be normal II. When shorter maturity treasuries start to yield more than longer maturity treasuries, the bond market is expecting the economy’s growth rate to slow, and the stock market usually falls in value shortly thereafter III. When shorter maturity treasuries are yielding more than longer maturity treasuries, it would be a...
Which characteristic best describes the Treasury yield curve? Select one: a. The curve normally begins flat...
Which characteristic best describes the Treasury yield curve? Select one: a. The curve normally begins flat and steepens to the right b. Coordinates of the yield curve are term to maturity on the horizontal axis and interest rate on the vertical axis c. The curve normally begins with a flat slope that becomes negative to the right d. Coordinates of the yield curve are yield to maturity on the horizontal axis and term to maturity on the vertical axis e....
Suppose the yield curve of an economy becomes B from A (the yield curve became flattened),...
Suppose the yield curve of an economy becomes B from A (the
yield curve became flattened), which of the following statements
are CORRECT? (*Note: This question was set to be multiple answer
instead of multiple choice by mistake. You are supposed to choose
only one of the following options.)
i. Duration of a coupon bonds have been increased.
ii. % Change in duration for high coupon bonds are higher for
high coupon bonds than small coupon bonds (both have the...
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.?
Compared to bonds with shorter maturity, bonds with longer maturity respond dramatically to changes in interest rates. Bonds with a maturity that is as short as the holding period have interest-rate risk.
Consider the file named yield curves. If the current yield curve is the one represented by Yield Curve 1 (Normal), then we can guess that the bond market participants expect the one-year interest rates one year hence and two years hence to be percent and percent, respectively. On the other hand, if the yield curve was the inverted one, we could conclude that the bond market participants expect the one-year interest rates one year hence and two years hence to...
5. Risks of investing in bonds Aa Aa The higher the risk of a security, the higher its expected return will be. A bond's risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The following graph shows the relationship between interest rates and maturity for three security classes: US Treasury securities (USTs), AA-rated corporate bonds, and BBB-rated corporate bonds. Use the dropdown menus to label each security's profile correctly: YIELD...
If the Treasury yield curve is downward sloping, how should the yield to maturity on a 13-year Treasury coupon bond compare to that on a 1-year T-bill? a. The vield on a 13-year bond would be less than that on a 1-year bill. b. The yield on a 13-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium. c. It is impossible to tell without knowing the coupon rates of the...
Suppose the yield curve of an economy becomes B from A (the
yield curve became flattened), which of the following statements
are CORRECT? (*Note: This question was set to be multiple answer
instead of multiple choice by mistake. You are supposed to choose
only one of the following options.)
i. Duration of a coupon bonds have been increased.
ii. % Change in duration for high coupon bonds are higher for
high coupon bonds than small coupon bonds (both have the...
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