A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 7.5% A-rated bonds sell at yields of 8% A10-year bond with a coupon rate of 7% is trading at 96.55, which represents a yield of 7.5%. If it is downgraded by Moody's from Aa to A rating, will its price rise or fall? What will the price be before and after?
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A bond's credit rating provides a guide to its risk. Long-term bonds rated Aa currently offer yields to maturity of 7.5% A-rated bonds sell at yields of 8% A10-year bond with a coupon rate of 7% is trading at 96.55, which represents a yield of 7.5%. If it is downgraded by Moody's from Aa to A rating, will its price rise or fall? What will the price be before and after?
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- A bond's credit rating provides a guide to its price. Assume Aaa bonds yield 3.6% and Baa bonds yield 4.6%. Assume a 10% five-year bond with annual coupons and a face value of $1,000. (Do not round intermediate calculations. Round your answers to 2 decimal places.) a. What is the bond's price if it is rated as Aaa? b. What is the bond's price if it is rated as Baa?A bond's credit rating provides a guide to its risk. Suppose that long-term bonds rated Aa currently offer yields to maturity of 5.4%. A- rated bonds sell at yields of 5.7%. Suppose that a 10-year bond with a coupon rate of 5.5% is downgraded by Moody's from an Aa to A rating. a. Is the bond likely to sell above or below par value before the downgrade? O Above par value Below par value b. Is the bond likely to sell above or below par value after the downgrade? Above par value O Below par valueA risk analyst seeks to find out the credit-linked yield spread on a BB-rated one-year coupon bond issued by a multinational mining company. If the prevailing annual risk-free rate is 3%, the default rate for BB-rated bonds is 8%, and the loss given default is 60%. You are required to calculate the yield to maturity of the bond.
- . Risks of investing in bonds A security with higher risk will have a higher expected return. A bond’s risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. Based on the graph, which of the following statements is true? Neither bond has any interest rate risk. The 1-year bond has more interest rate risk. Both bonds have equal interest rate risk. The 10-year bond has more interest rate risk. Which type of bonds offer a higher yield? Noncallable bonds Callable 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 TrueWhich one of the following statements concerning debt instruments is correct? O A) A 25-year bond with a coupon rate of 9% and 1 year to maturity has more interest rate risk than a 10-year bond with a 9% coupon issued by the same firm with 1 year to maturity. O B) The coupon rate and yield of an outstanding long-term bond will change over time as economic factors change. O C) For long-term bonds, price sensitivity to a given change in interest rates is greater the longer the maturity of the bond. O D) A bond with 1 year to maturity would have more interest rate risk than a bond with 15 years to maturityA nominal risk-free rate is currently 3.5%. A broker at INV Securities, has given you the following estimates of current interest rate premiums: Inflation Premium: 2%, Liquidity Risk Premium 1.5%. Maturity Risk Premium 3%, and Default Risk Premium 1.5%. Based on these data, what are the rates of short-term corporate bonds? O 7.5% O 6.5% 8% 8.5%
- Which of the following statements is CORRECT? a. If a coupon bond is selling at par, its current yield equals its yield to maturity. b. If a coupon bond is selling at a discount, its price will continue to decline until it reaches its par value at maturity. c. If interest rates increase, the price of a 10-year coupon bond will decline by a greater percentage than the price of a 10-year zero coupon bond. d. If a bond's yield to maturity exceeds its annual coupon, then the bond will trade at a premium. e. If a coupon bond is selling at a premium, its current yield equals its yield to maturity.One of the above is the most accurate statement?a. A bond is trading at a premium if its yield to maturity approaches its annual coupon.b. As interest rates rise, a 10-year coupon bond's relative price adjustment would be higher than that of a 10-year nil coupon bond.c. A coupon bond's present yield matches the yield to maturity whether it sells at par.d. Both a and c are true.e. None of the above claims are true.Risks of investing in bonds A security with higher risk will have a higher expected return. A bond’s risk level is reflected in its yield, but understanding the different risks involved when investing in bonds is important. The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. Q1. Based on the graph, which of the following statements is true? a. Neither bond has any interest rate risk. b. The 10-year bond has more interest rate risk. c. Both bonds have equal interest rate risk. d. The 1-year bond has more interest rate risk. Q2. Which type of bonds offer a higher yield? a. Noncallable bonds b. Callable bonds Q3. 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.…
- (i) Two types of risks faced by bodholders are interest rate risks and default risks? What are interest rate risks and default risks, and why might a bond exhibit more or less of these risks? (ii) You see a bond with the following characteristics: bond matures in 10 years coupon rate = 7% APR compounded semi-annually, paid semi-annually face value = $1000 bond price = $900 What is the yield to maturity (YTM) of this bond, stated as an APR with semi-annual compounding?The current zero-coupon yield curve for risk-free bonds is as follows: coupon, risk-free bond? . What is the price per $100 face value of a two-year, zero- The price per $100 face value of the two-year, zero-coupon, risk-free bond is $ (Round to the nearest cent.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Maturity (years) 1 2 3 YTM 4.95% 5.49% 5.76% 4 5.97% 5 6.09% Print Done -The Expectations theory suggests that under certain conditions all bonds outstanding, especially Treasury bonds, must have identical total returns over a 1-year holding period, independently of their final maturity. suppose that today’s interest rate on a 2-year default free zero-coupon Treasury bond that pays $100 at maturity (0i0,2) is 6%. What is today’s price of such a bond (that is, what would you pay to purchase such a bond)?