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All else equal, which
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Solved in 2 steps
- 1. How do we determine the present value of a bond when market rate differs from its contract rate?What is the relationship between interest rate level and bond price? Why must this relationship be true? How has the current rate environment impacted the prices of bonds?All else equal, which bond price is more affected by a change in interest rates, a short-term bond or a longer-term bond? Why?
- What happens when the bond's market rate is greater than the stated rate?What is the link between the level of interest rates and the price of bonds? Why does this connection have to be true? How has the present interest rate environment affected bond prices?Interest rates and bond prices have a direct relationship? true or false
- Is the price of a long-term (longer-maturity) bond more or less sensitive to changes in interest rates than that of a short-term bond? Why?What effect do interest rates have on bond prices? What are the fundamental assumptions that go into valuing a bond?What effect does collateral have on a bond's interest rate? What effect does subordination have on a bond's interest rate? What other factors might alter a bond's interest rate?
- What exactly is a bond's "call" feature? What impact does the call feature have on bond premium or discount amortization?What relationship exists between bond prices and interest rates? Explain how you came to make this link. What approach may we use to determining the bond's value based on this relationship?What is the relationship between the PV and the market interest rate? Does a lower market rate impact the price of the bond? Why?