Bond A and Bond B are zero coupon bonds. Bond A has a maturity of 10 years and Bond B has a maturity of 15 years. This would mean that Bond B has more interest rate risk as compared to Bond A.   Group of answer choices   True False

Explain what you see from the pricing calculations. How do the two bonds differ?    Bond C Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4          Cn = Coupon payment in the nth period = 10%*$1,000 = $100      YTM = interest rate or required yield = 9.6%              P = Par Value of the bond = $1,000   Bond Z Bond Price = PV(rate,nper,pmt,fv) Given: n = Period which takes values from 0 to the nth period = 0,1,2,3 & 4          Cn = Coupon payment in the nth period = 0%*$1,000 = $0.00      YTM = interest rate or required yield = 9.6%              P = Par Value of the bond = $1,000   years Bond A Bond Z 4 $1,012.79 $693.04 3 $1,010.02 $759.57 2 $1,006.98 $832.49 1 $1,003.65 $912.41 0 $1,000.00 $1,000.00

Bond A has a coupon rate of 4% and a yield of 4%.  Bond B has a coupon rate of 3% and a yield of 3%.  Which bond has the higher price?  (All else equal.) Select one: a. Bonds A & B will have the same price b. not enough information to determine c. B d. A

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Question 3. A fixed rate bond with notional 1 pays annual coupons of c at times T1, T2, . . . , Tn where Ti+1 = Ti + 1 and notional 1 at time Tn. a) Write down the bond price BFXD c (t) at time t ≤ T0 in terms of ZCBs. b) Suppose t = T0 = 0. The yield of the bond is defined as the value Y such that B FXD c (0) = Xn i=1 c (1 + Y ) i + 1 (1 + Y ) n , that is, the rate at which IRR discounting gives the bond price. By summing a geometric series, show that BFXD c (0) = 1 if and only if Y = c. c) By writing a swap as the difference between a fixed rate bond and a floating rate bond, show that BFXD c (0) = 1 if and only if c = y0[0, Tn]. Remark 1. This exercise shows that the T-year spot swap rate is the bond coupon such that a T-maturity bond has price par, that is 100% of notional.

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Ceteris paribus, the longer the term to maturity of a bond, the _____ the bond’s price risk. Group of answer choices more less same all of the above three choices are possible

Calculating the risk premium on bonds The text presents a formula where (1+1) = (1-p)(1 +i+x) + p(0) where i is the nominal interest rate on a riskless bond x is the risk premium p is the probability of default (bankruptcy) If the probability of bankruptcy is zero, the rate of interest on the risky bond is When the nominal interest rate for a risky borrower is 8% and the nominal policy rate of interest is 3%, the probability of bankruptcy is %. (Round your response to two decimal places.) When the probability of bankruptcy is 6% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) When the probability of bankruptcy is 11% and the nominal policy rate of interest is 4%, the nominal interest rate for a risky borrower is %. (Round your response to two decimal places.) The formula assumes that payment upon default is zero. In fact, it is often positive. How would you change the formula in this case?…

Consider the following bonds: (Click on the following icon in order to copy its contents into a spreadsheet.) Bond A B C D Coupon Rate (annual payments) 0% 0% 6% 12% Maturity (years) 17 11 17 11 a. What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%? b. Which of the bonds A through D is the most sensitive to a 1% drop in interest rates from 6% to 5% and why? Which bond is the least sensitive? Provide an intuitive explanation for your answer. Note: Assume annual compounding. a. What is the percentage change in the price of each bond if its yield to maturity falls from 6% to 5%? The percentage change in bond A is %. (Round to two decimal places.) The percentage change in bond B is %. (Round to two decimal places.) The percentage change in bond C is %. (Round to two decimal places.) The percentage change in bond D is%. (Round to two decimal places.) b. Which of the bonds A through D is the most sensitive to a 1% drop in interest rates, from…

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