The correct statement is
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 end of the year, divided by the bond’s price at the beginning of the year.
The total (rate of) return on a bond during a given year = {the coupon interest payments + (Price of the bond at the end of the year - Price of the bond at the beginning of the year)}/ Price of the bond at the beginning of the year
All the other statements are wrong because -
Which of the following statements is CORRECT? O 10-year, zero coupon bonds have more reinvestment risk...
Which of the following statements is CORRECT? Question 14 options: 10-year, zero coupon bonds have more reinvestment risk than 10-year, 10% coupon bonds. A 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...
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...
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...
What security will have more reinvestment rate risk a 5-year zero coupon bond or a perpetuity, why? The 5-year zero coupon bond will have more risk associated with the uncertainty of what the proceeds from this investment will earn in the future after the 5 year zero matures and is invested again in the market. The perpetuity will have more risk associated with the certainty of what the proceeds from this investment will earn in the future. The perpetuity will...
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...
Bonds often pay a coupon twice a year. For the valuation of bonds that make semiannual payments, the number of periods doubles, whereas the amount of cash flow decreases by half. Using the values of cash flows and number of periods, the valuation model is adjusted accordingly. Assume that a $1,000,000 par value, semiannual coupon Government of Canada bond with two years to maturity (YTM) has a coupon rate of 6%. The yield to maturity of the bond is 9.90%....
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...
10.Which one of the following statements is NOT true? Select one: A. The risk that the lender may not receive payments as promised is called default risk. B. Investors must pay a premium (a higher price) to purchase a security that exposes them to default risk. C. Australian government securities are assumed not have any default risk and are adopted as the best proxy measure for the risk-free rate. D. The greater the risk of an investment, the greater the...
The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. BOND VALUE ($1 2000 1750 1500 1250 1000 1-Year Bond 10-Year Bond 4 8 12 16 20 INTEREST RATE (%) Based on the graph, which of the following statements is true? O Both bonds have equal interest rate risk The 1-year bond has more interest rate risk. Neither bond has any interest rate risk. The 10-year bond has more interest rate...
Three $1,000 face value, 10-year, noncallable, bonds have the same amount of risk, hence their YTMs are equal. Bond 8 has an 8% annual coupon, Bond 10 has a 10% annual coupon, and Bond 12 has a 12% annual coupon. Bond 10 sells at par. Assuming that interest rates remain constant for the next 10 years, which of the following statements is CORRECT? a. Since the bonds have the same YTM, they should all have the same price, and since...