5) For each of the following state whether it is True or False and provide a...

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5) For each of the following state whether it is True or False and provide a...

5) For each of the following state whether it is True or False and provide a brief explanation (1 or 2 sentences) as to why it is true or false.

a) All else the same, a higher coupon rate will mean a higher price for a standard coupon bond.

b) All else the same, a higher coupon rate will mean a higher duration for a standard coupon bond.

c) All else the same, a shortage in the money market will lead to the price of bonds falling.

business economics

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Answer 1

Answer #1

a) True. Coupon rate is the yield paid by the issuer relative to the bond's face value, so a higher coupon rate would demand more price for a bond

b) False. Coupon rate and duration are inversely related as in short term the bonds are subjected to less volatility

c) True. A shortage in money market leads to increase in interest rate, which leads to increase in supply of bonds which reduces the price of bonds

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Answer 2

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