Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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The
Multiple Choice
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Long-term government bonds
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Long-term corporate bonds
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Intermediate-term government bonds
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U.S. Treasury bills
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Large-company stocks
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Risk Premium is the return offered to the investors for inducing them to invest in securities having higher risk. It can be classified in various premiums which includes premium for inflation, credibility of issuer and term period.
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- Which of the following is true about a bond's interest rate risk relative to its time-to-maturity? Multiple Choice A 10-year U.S. Treasury bond is not exposed to interest rate risk due to the "risk-free" nature of U.S. Treasury investments. Time-to-maturity and interest rate risk are directly correlated. The higher a bond's time-to-maturity, the less variation in the bond's value from potential changes in interest rates. All of the above.arrow_forwardPls help ASAParrow_forwardBonds. What is the relationship between the price of a bond and its YTM? All else being the same, which has more interest rate risk, a long-term bond or a short-term bond? What about a low coupon bond compared to a high coupon bond? What about a long-term, high coupon compared to a short-term, low coupon bond? Why?arrow_forward
- b. Now suppose ExxonMobil’s bonds, rated AAA, have the same maturitiesas the Treasury bonds. As an approximation, plot an ExxonMobil yieldcurve on the same graph with the Treasury bond yield curve. (Hint: Thinkabout the default risk premium on ExxonMobil’s long-term versus shortterm bonds.)arrow_forward1. A “buy-and-hold” investor purchases a fixed-rate bond at a discount and holds it until it matures. Which of the following least likely contributes to the investor’s total return, assuming all payments are made as scheduled? A. Capital gain B. Principal payment C. Reinvestment of coupon payments D. Coupon incomearrow_forward1. 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 ratearrow_forward
- An increase in which factors increases the interest rate sensitivity (duration) of a bond? Check all that apply: Time to maturity Coupon rate Par value Bond ratingarrow_forwardDo solve all parts A. What risk premium do you use? Why? B. Why is the geometric mean lower than the arithmetic mean for both bonds and bills? C. If you had to use a risk premium with the longer periods, what biases will the investor have?arrow_forwardA portfolio's manager's views on the term structure of interest rates: "Yields reflect expected spot rates and risk premiums. Investors demand risk premiums for holding long-term bonds, and these risk premiums increase with maturity. This manager's views are most consistent with the: A. Segmented markets theory B. Local expectations theory C. Preferred habitat theory OD. Liquidity preference theoryarrow_forward
- What discount rate sets the present value of the promised bond payments equal to the current market price of the bond? Market risk premium Beta Yield to Maturity Coupon Ratearrow_forwardIdentify/explain the relationship between coupon rate and yield to maturity for: Discount Bonds Premium Bonds Par Value Bondsarrow_forwardThese are corporate bonds that have a higher rate of return with a higher level of risk? Group of answer choices Revenue bonds Junk bonds GOBs Tax increment bondsarrow_forward
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