Consider the zero coupon Treasury bond yield curve. Suppose a 1 year bond has a yield of 2.13%. The yield curve slopes downwards between maturities of 1 year and 3 years, and then slopes upwards. Which of the following must be true?   Group of answer choices   A) The yield of a zero coupon bond with maturity 5 years is higher than 2.13%.   B) A 1 year positive coupon bond must have a lower price than the zero coupon bond with the same maturity.   C) Bond purchasers believe the Fed will decrease rates in the short run, and then increase them in the long run.   D) The economy will be in a recession within 2 years.   E) C and D.

The yield curve currently observed in the market is as follows: y1 = 7%, Y2 = 8%, and yz = 9%. You are trying to decide between buying a two-year bond (Bond A) and three-year bond (Bond B), each of which is default-risk free and pays annual coupons of 8% per year. You strongly believe that yield curve in one year will become flat at 9%. Which one of the two bonds should you buy today if you plan to sell this bond in exactly one year (right after you receive the first coupon payment)? Assume interest is compounded annually, and each bond has a face value of $1,000. Bond B O Neither bond -- The expected total return of both bonds will be negative if interest rates increase to 9% in one year Bond A Both bonds provide the same return over a one year investment horizon A portfolio that invests 50% of your wealth in each bond provides the highest total expected return

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. Q1. 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? a. The bond is callable. b. The probability of default is zero. Consider the case of RTE Inc:  Q2. RTE 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, RTE 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 RTE Inc.’s bonds?   Value YTM ? YTC ? Q3. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Inc.’s bonds? a. 8 years b. 10…

The yield to maturity on a bond   a is fixed in the indenture. b is lower for higher-risk bonds. c is the required return on the bond. d is generally equal to the coupon interest rate.