Which of the following statements are most likely to be true?1. The only factor that has an impact on a bond's price is its yield tomaturity.II. Bond prices and market interest rates move in the opposite direction.III. As time passes and a bond approaches its maturity date, its (ex-coupon)price will converge to its face value.Group of answer choicesI and Il only.I and III only.Il and III only.I, Il and II.3)A company has a bank loan outstanding that requires it to make annual paymentsof $1,000,000 at the end of each of the next three years. The bank has offered tothe company to skip the next two payments and instead make a single payment atthe end of the loan's term in three years' time. If the interest rate on the loan is 6%p.a., compounded quarterly, the final payment that will make thecompany indifferent between the two payment options is closest to:Group of answer choices$2,666,283.$2,673,012.$3,183,600.$3,187,856.2)

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2) Which of the following statements are most likely to be true? I. The only factor that has an impact on a bond's price is its yield to maturity. II. Bond prices and market interest rates move in the opposite direction. II. As time passes and a bond approaches its maturity date, its (ex-coupon) price will converge to its face value. Group of answer choices I and Il only. I and II only. Il and III only. I, Il and III.

2) Which of the following statements are most likely to be true? I. The only factor that has an impact on a bond's price is its yield to maturity. II. Bond prices and market interest rates move in the opposite direction. II. As time passes and a bond approaches its maturity date, its (ex-coupon) price will converge to its face value. Group of answer choices I and Il only. I and II only. Il and III only. I, Il and III.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. Which of the following is correct? Group of answer choices 1. The lower the price you pay for a bond, the greater is your return. 2. A bond is overpriced when its value is greater than its price. 3. A fairly priced bond has a price equal to its face. 4. The value of a bond can be determined by the present value of all coupon payments and the present value of principal payment at maturity date.
Which of the following statements is/are most CORRECT? O 11 A yield curve depicts the relationship between bond's 'time to maturity and its yield to maturity. 2) A premium bond's price will decline over time if the required return remains unchanged. 3) A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.
Which of the following statement(s) is/are most likely to be false? The coupon yield is another term for the coupon rate paid on a coupon paying bond. The coupon yield on a zero coupon bond will always be zero. Group of answer choices A. I only. B.II only. C. Both I and II. D. Neither I nor II.
1. Under what conditions would the yield-to-maturity and current yield of a bond be equal? Group of answer choices a. The bond is priced at par b. The bond is priced at a discount c. Insufficient information d. The bond is priced at a premium 2. Which of the following is correct about the risk-free rate as used in valuing equity instruments? Group of answer choices a. The risk-free rate accounts for the rate of return or yield of a government instrument which does not carry any risk. b. The risk-free rate used for valuing equity instruments is normally the yield of a long-term government security. c. The risk-free rate used for valuing equity instruments is the same as that used for valuing short-term debt instruments. d. The risk-free rate accounts for the risks related to government securities which is composed of credit-spread, maturity risk premium and the real risk-free rate. 3. Berg Inc. has just paid a dividend of P2.00. Its stock is now selling…
1. When the market interest rate rises, what happens to bond prices? Group of answer choices They rise They stay the same Cannot be determined They fall 2. A bond discount occurs when: Group of answer choices The price of a bond is above its face value. The price of a bond is above its maturity value. The price of a bond is below its face value. The price of the bond is equal to a bond's face value. 3. When a bond sells for a premium, Group of answer choices The price is above the face value The price is equal to the face value. The price is below the face value The price is below the maturity value. 4. A bond has a face value of $100,000 and a price of $97,000. The journal entry at the date of issuance would include: Group of answer choices A credit to Bond Discount of 3,000 A debit to Bond Discount of 97,000 A debit to Bond Discount of 3,000 A credit to Bond Premium of 3,000 5. A bond has a face…
4. The following statements describe the general characteristics of price of the coupon bond. Which one is false? a. When the market interest rate falls, the bond price rises. b. The value of bond can be computed as the sum of PDV (present discount value) of all the remaining future payments associated with it. c. When the market interest rate is the same as the coupon rate, the value of bond equals the face value. d. The face value and the coupon rate are fixed for the life of the bond. None of the above are false. е.
2. Bond prices and yields (S3.1) The following statements are true. Explain why. a. If a bond's coupon rate is higher than its yield to maturity, then the bond will sell for more than face value. b. If a bond's coupon rate is lower than its yield to maturity, then the bond's price will increase over its remaining maturity.
Which of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.
Instructions: Choose the right answer w/ explanation. [3]. Which of the following will yield to lower coupon rates? A bond has a call option A bond has a put option A bond is not convertible A bond is subordinated
Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond’s yield. Q1. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? a. The bond is callable. b. The probability of default is zero. Consider the case of RTE Inc: Q2. RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, RTE Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on RTE Inc.’s bonds? Value YTM ? YTC ? Q3. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Inc.’s bonds? a. 8 years b. 10…
1. Use the following statements to answer questions 1-2. Statement 1: Modified duration is a better measure for a bond’s sensitivity for shaping risk than key rate duration. Statement 2: Effective duration is a better measure for a bond with an embedded option than modified duration. Statement 3: Spread duration is a measure of the risk-free rate change. Statement 4: Modified duration is a measure of curve duration. A. Statement 3 B. Statement 4 C. Both statement 3 and 4 D. Neither statement
2. For cach of the following situation, identify whether a bond would be considered a premium bond, a discounted bond, or a par bond. a. A bond's current market price is greater than its face value. b. A bond's coupon rate is equal to its yield to maturity. c. A bond's coupon rate is less than its required rate of return. d. A bond's coupon rate is less than its yield to maturity. e. A bond's coupon rate is greater than its yield to maturity. f. A bond's fair present value is less than its face value. Answer: a. ..... b. с. d. e. f.

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