5. Price risk and reinvestment rate risk Which of the following statements are true? Check all that apply. оооо Purchasing long-term bonds reduces an investor's interest rate risk. Bonds with similar coupons will always have the same percentage price change, no matter the maturity. As long as bonds are highly rated, there is very little interest rate risk. When interest rates rise, the coupon rates on newly issued bonds will increase.

5. Price risk and reinvestment rate risk Which of the following statements are true? Check all that apply. оооо Purchasing long-term bonds reduces an investor's interest rate risk. Bonds with similar coupons will always have the same percentage price change, no matter the maturity. As long as bonds are highly rated, there is very little interest rate risk. When interest rates rise, the coupon rates on newly issued bonds will increase.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...

See similar textbooks

Similar questions

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.
Which of the following statements is TRUE? O The demand for a bond declines when it becomes less liquid, decreasing the interest rate spread between it and relatively more liquid bonds. O The corporate bond market is the most liquid bond market. O The differences in bond interest rates reflect differences in default risk only. O A liquid asset is one that can be quickly and cheaply converted into cash.
Which one of the following statements is NOT true? As interest rates increase, bond prices increase. Interest rate risk is the risk that bond prices will change as interest rates change. Interest rate changes and bond prices are inversely related. Long-term bonds have more price volatility than short-term bonds of similar risk
H4. Which statement is true? a. Duration is good for estimating the impact of large interest rate changes. b. The duration estimate is less accurate, the less convex the bond price/yield relationship. c. Effective duration is used to measure the price risk of the bonds with call options. d. The tangent line always overestimates the actual price
5. Бопа уyielas 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. 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? The bond will not be called. The bond has an early redemption feature. Consider the case of Blanche Inc.: Blanche 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, Blanche 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 Blanche Inc.'s bonds? YTM YTC Value If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Blanche Inc.'s bonds? 13…
Which of the following claims is true?a. Long-term bonds have lower interest rate risk than short-term bonds but higher reinvestment rate risk.b. Long-term bonds have higher interest rate exposure and lower reinvestment risk than short-term bonds.c. As compared to coupon-bearing bonds, zero coupon bonds have higher interest rate exposure but lower reinvestment rate risk.d. As interest rates rise, all bond prices rise, although the increase would be greatest for bonds with lower interest rate danger.e. One drawback to zero coupon bonds is that you do not have to incur interest on them before you sell the bond or it matures.
Explain how does a bond par value differs from its market value? Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.
1. What is the Shape of the Yield Curve today? What does that suggest that the Market is pricing into the future of interest rates? 2. Why should we care what the Term Structure of Interest Rates looks like? 3. What does a Bond Rating tell us about the bond's risk? What does it not tell us about the risk of investing in the bond? 4. The Expectations Theory of the Term Structure of Interest Rates implies that the term structure is the result of expected inflation rates in the future. What else might cause the term structure to be what it is, that might not be in the Expectations Theory?
?5. Bond yields 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. 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? The bond has an early redemption feature. The bond will not be called. Consider the case of Eades Corp.: Eades Corp. 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 $1,010.35. However, Eades Corp. 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 Eades Corp.'s bonds? Value YTM YTC If interest rates are expected to remain constant, what is the best estimate of the remaining life left for Eades Corp.'s bonds? 18 years…
Chapter 7 is about interest rates and bond valuation. Your WSJ article should be about bonds, not just interest rates. Discuss how and why bond values fluctuate. What is meant by interest rate risk and why is it related to a bond's maturity? What factors influence a bond's YTM? What is the difference between a coupon rate, yield to maturity, and current yield? What is Fisher effect and the relationship between real and nominal interest rates?
If 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 increase
Price risk is the risk that Select one: a. the bond principal will not be paid in full or on time. b. market prices increase due to market interest rate changes making bonds more expensive to purchase. c. the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates. d. the yield-to-maturity will be less than the inflation risk causing the real rate of return to be negative. e. coupon payments will be reinvested at a rate that is less than the bond's yield-to-maturity