Explain how does a bond par value differs from its market value? Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.

Explain how does a bond par value differs from its market value? Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...

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Similar questions

Assume that inflation is expected to rise soon. How could this affect future bond prices? Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation?
If interest rates in the financial markets increase after a bond is issued, what will happen to the bond's price and to its yield to maturity? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond's price?
How does one determine the required rate of return of a bond, the cash flows of a bond and the value of a bond? How do you determine if a bond is a good investment? Are long-term bonds riskier than short-term bonds? Explain and Discuss.
Is the price of a long term bond or the price of a short term security more sensitive to a change in interest rates? Why?
The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation that the inflation is expected to decline in the near future? Explain.
Why is it an interest rate risk when investing in long-term bonds?
When it comes to bond values, what role do interest rates play? How can you value a bond if you don't know what the fundamental assumptions are.
Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity?