d. Do high-coupon bonds sell at higher or lower prices than low-coupon bonds? e. If interest rates change, do the prices of high-coupon bonds change proportionately more than that of low-coupon bonds?

d. Do high-coupon bonds sell at higher or lower prices than low-coupon bonds? e. If interest rates change, do the prices of high-coupon bonds change proportionately more than that of low-coupon bonds?

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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3. Bond prices and yields (S3.1) Construct some simple examples to illustrate your answers to the following:

d. Do high-coupon bonds sell at higher or lower prices than low-coupon bonds?
e. If interest rates change, do the prices of high-coupon bonds change proportionately more than that of low-coupon bonds?

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As interest rates, and consequently investors' required rates of return, change over time, the ________ of outstanding bonds will also change. a. price b. par value c. coupon interest payment d. maturity date
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Do bondholders fare better when the yeild to maturity increases or when it decreases? Why?
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.
If the YTM is less than the coupon rate, wouldn't the bond price be higher?
Interest-rate risk results from: Answer a. Bond prices being fixed over the life of the bond b. Inflation being uncertain c. A mismatch between an individual investment horizon and a bond maturity d. The fact that most people hold bonds until they mature
What happens to Bond prices, quantities, and interest rates if (Make sure to include the supply and demand graph for bonds for each question : a) Decrease in wealth b) Increase in risk c) Decrease in liquidity
mc attached
A bond will sell at a premium when its coupon interest rate: is lower than the market interest rate on similar bonds. O exceeds the market interest rate on similar bonds. O varies more than the market interest rate on similar bonds. O equals the market interest rate on similar bonds.
What is a bond’s market value when the required rate of return (ie market rate) is less than the coupon rate? The bond’s market value is less than the par value. The bond’s market value is the same as the par value. The bond’s market value is greater than the par value. None of the above.
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As the price of a bond □ a. rises; rises Ob. falls; falls c. rises; falls O d. falls; rises and the expected return , bonds become more attractive to investors and the quantity demanded rises.

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