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Choose from liquidity premium, taxability premium, default risk premium, maturity premium.
1.For a long term bond, bondholders demand a higher yield as compensation is called?
2.When a bond has poor credit rating, bondholders demand a higher yield as compensation is called?
3.When a bond has less frequent trading, bondholders demand a higher yield as compensation is called?
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- Describe the differences between the yield to maturity (YTM) and the yield to call (YTC) on a bond. Why would the return to the investor be different if a bond is called? Justify your answerExplain the differences between a bond's yield to maturity (YTM) and its yield to call (YTC). Is there a reason why the return to the investor would alter if a bond is called? Please provide justification for your response.3. Bond prices and yields (S3.1) Construct some simple examples to illustrate your answers to the following:
- Do bondholders fare better when the yield to maturityincreases or when it decreases? Why?According to the expectations theory of the term structure, O a when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. O b. when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future. O c. buyers of bonds prefer short-term to long-term bonds. O d. all of the above. O e. only A and B of the above.Bond investors prefer short maturities. This is based on: a.default risk b.liquidity risk c.maturity preference d.expectations theory
- Which type of bonds offer a higher yield? Callable bonds Noncallable bonds Answer the following question based on your understanding of interest rate risk and reinvestment risk. True or False: Assuming all else is equal, the shorter a bond's maturity, the more its price will change in response to a given change in interest rates. False TrueIf the risk associated with bonds issued by a particular issuer decreases, how will this affect the price and yield of these bonds? Multiple Choice The price of the bond will increase but the yield will decrease The price of the bond and yield will both increase The price of the bond and yield will both decrease The price of the bond will decrease but the yield will increase1. 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…
- Under what situation might a bond discount arise when issuing bonds? Select one: a. The coupon rate is less than the effective or yield rate. b. The effective or yield rate is less than the coupon rate. c. The coupon rate is less than the cash rate of interest. d. The effective or yield rate is less than the market rate of interest.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.It is the interest rate that the buyer will actually earn if the bond is held to maturity and there is no default. A. yield to maturity B. no choice given c. current yield d. coupon discount rate e. coupon payment rate