Consider two fixed coupon bonds with the same maturity 10Y and same face value F = 100. Bond 1 pays yearly coupons with coupon rate C₁ = 5% and bond 2 has coupon rate C₂ = 7%. Which of the two bonds has a larger duration? (a) Bond 1. (b) Bond 2. Consider two exchange rates X/Y and Z/Y. (For example EUR/USD and JPY/USD.) They both follow perfectly correlated geometric Brownian motions with parameters (μ₁,01) and (µ₂,0₂). Does the cross-exchange rate X/Z (for example EUR/JPY) also follows a geometric Brownian motion? (a) Yes (b) No

Consider two fixed coupon bonds with the same maturity 10Y and same face value F = 100. Bond 1 pays yearly coupons with coupon rate C₁ = 5% and bond 2 has coupon rate C₂ = 7%. Which of the two bonds has a larger duration? (a) Bond 1. (b) Bond 2. Consider two exchange rates X/Y and Z/Y. (For example EUR/USD and JPY/USD.) They both follow perfectly correlated geometric Brownian motions with parameters (μ₁,01) and (µ₂,0₂). Does the cross-exchange rate X/Z (for example EUR/JPY) also follows a geometric Brownian motion? (a) Yes (b) No

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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1. If a company's bonds are selling at a discount, then Select one: a. The coupon interest rate is equal to the going interest rate b. The going rate of interest is above the coupon rate c. The current interest rates are below the coupon rate d. The YTM is below the coupon interest rate
Bond A sells for $990. Bond B sells for $1010. Both bonds have a coupon rate of 4%. Which bond has the higher yield? (All else equal.) Select one: a. not enough information to determine b. B c. they will both have the same yield d. A
A bond is currently selling for $880. This indicates that this bond is _____, and you would expect that the coupon rate would be _____ than the current market rate. Attractive; greater than Attractive; less than Unattractive; greater than Unattractive; less than
Two bonds, bond A and bond B, are identical except that bond A is convertible and bond B is not. Which bond will have the higher price? Why
Solve this practice problem
Which of the following statements is/are most CORRECT? O 11 A yield curve depicts the relationship between bond's 'time to maturity and its yield to maturity. 2) A premium bond's price will decline over time if the required return remains unchanged. 3) A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.
a) All things being equal If a bond's coupon rate is higher than its yieldto maturity (YTM), is the bond selling at a discount, premium or par?b) All things being equal If a bond's coupon rate is lower than its yield tomaturity (YTM), is the bond selling at a discount, premium or par?c) All things being equal If a bond's coupon rate is equal to its yield tomaturity (YTM), then is the bond selling at a discount, premium or par?d) All else being equal, the longer the term to maturity, the greater orthe lower the duration?f) All else being equal, the higher the coupon rate on the bond, theshorter or the longer the duration of the bond?
All else the same, if interest rates fall, then 1. bond prices will rise II. coupon payments on floating rate bonds will fall III. the percentage price change for short-term bonds will be greater than for long-term bonds IV. the percentage price change for high coupon bonds will be greater than for low coupon bonds Select one: O a. I, III, and IV only O b.ll and IV only Ocland Il only O d. Ill and IV only O e.1, 1l and Ill only
A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________.
A dual-currency bond makes coupon interest payments in one currency and the principal repayment at maturity in another currency. Select one: True False
Consider two pairs of bonds; A and B, and C and D. A and B are both coupon bonds, they have the same coupon rate, but A has a longer time-to-maturity than B, and at the prevailing rate they sell at the same price. C is a coupon bond and D is a zero coupon bond, they both have the same time-to-maturity, and at the prevailing rate they sell at the same price. If interest rates rise by the same amount for all of the bonds, which bond in each pair will fall by the greater amount in price? A and D OB and C O If bonds are priced in an efficient market, their price is not altered by transitory events. OB and D OA and C 4
Consider a 1-factor parallel yield shift model with a flat structure of interest rates and consider two bonds with the same maturity time T but with different coupon rates. Which bond has a higher duration? A) The bond with a lower coupon rate B) The bond with a higher coupon rate C) The Durations of these two bonds are the same

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