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?

Q: What is the connection between the interest rate and the price of a fixed coupon bond? Why is this…

A: The cost of bonds issued is attractive. Interest is paid at predetermined intervals. Bondholders are…

Q: How low does the market interest rate need to drop to justify refunding with a new bond issue?

A: Step 1 NPV is employed in capital budgeting and investment going to analyze the gain of a projected…

Q: Explain why modified duration a better measure is than maturity when calculating the bond’s…

A: Modified duration is also known as volatility of bond. Ir indicates change in the price of bond with…

Q: What is a maturity risk premium?   Group of answer choices -A premium that reflects interest rate…

A: Maturity risk premium: It is the additional return on investment when buying any bond with longer…

Q: Why does the yield on a discount bond surpass the coupon rate

A: Introduction:The bond will trade at a discount if the yield to maturity (YTM) exceeds the coupon…

Q: To which type of risk are holders of long-term bonds more exposed? Short-termbondholders?

A: Interest rate risk arises because of the changes in the fluctuation of the interest rates. The tool…

Q: Under what conditions will a discount bond have anegative nominal interest rate? Is it possible for…

A: A discount bond is a bond that is issued for less than its par—or face—value. Discount bonds may…

Q: If you buy a callable bond and interest rates decline, will the value of your bond rise by asmuch as…

A: Bond valuation refers to the evaluation of bond value at any point of time, which can be used for…

Q: If interest rates rise after a bond issue, what will happen to the bond’s price and YTM? Does the…

A: The corporation and government can raise finance by issuing bonds. The borrower i.e bond issuer is…

Q: Which tend to be more volatile, short- or long-term interest rates? Long-term interest rates…

A: short term interest rates are more volatile than long term interest rate.

Q: affect future bond prices?

A: 1. Interest and inflation rates are directly proportional to each other . (Keep other factors…

Q: If we were to keep a bond until maturity, would interest rate risk still matter? and why?

A: Bond Risk refers to various risks that are specifically associated with investment in bonds for…

Q: Which one of the following statements is NOT true? As interest rates increase, bond prices increase.…

A: Introduction: Bond is nothing but debt securities issued by a company or government if they want to…

Q: Does it make any difference if the coupon rate on a bond is more than the needed rate of return on…

A: Introduction: Bond prices are determined by the needed rate of return on the bond, and bond prices…

Q: The rate of return on a bond held to its maturity date is called the bond’syield to maturity. If…

A: It refers to the rate of interest earned till the maturity of the bond by the bond holder.

Q: All else equal, which bond's price is more affected by a change in interest rates, a short-term bond…

A: Solution:- We know, interest rate and the price of bond are inversely related. Duration means change…

Q: Explain the impact of a decline in interest rates on the prices of existing bonds.

A: Bonds prices are related to interest rate in market. Prices of bond depends on rate of interest in…

Q: Interest rate risk is the potential for investment (   ) that result from a change in interest…

A: solution concept interest rate tends change in the market Along with the change in interest rate the…

Q: What is the effect on interest of an interest rate swap?

A: Derivatives: Derivatives are some financial instruments which are meant for managing risk and…

Q: price of a long-term (longer-maturity) bond more or less sensitive to changes in interest rates than…

A: Long term bonds are more sensitive to change in interest rates than short term bond. If Interest…

Q: Provide some idea of the effect of the sensitivity of security prices to changes in market interest…

A: Sensitivity of interest rate (IR) is a technique of measuring change in the price of securities in…

Q: What is the price of floating rate bond that is at its reset date?

A: Floating rate Bond : It is the bond where there is  variable coupon payment to  investor. Interest…

Q: What is the relationship between forward rates and the market’s expectation of future short rates?…

A: Forward rate implies the yield on the bond expected by investors in future. It is the calculated…

Q: Which one of the following bond values will change when interest rates change? O The expected cash…

A: Value of a bond is the present value of the future cash flows discounted at a required rate of…

Q: what happens to the bond prices when interest rate falls?

A: At the point when interest rates increase, the bond price downfall, and bond costs ascend as loan…

Q: Should the rate of return of a call option on a long-term Treasury bond be more or less sensitive to…

A: The financial contracts available which give the buyer the right to buy a stock or underlying asset…

Q: What is the difference between a bond's coupon rate and its required return

A: A financial instrument is a bond. The issuer issues a bond to raise funds and repay the money at the…

Q: What makes it so difficult to correctly forecast interest rate changes?

A: Interest rates are used to understand price and value of money. Interest rate is the cost incurred…

Q: Why do the prices of fixed-rate bonds fall if expectations for inflation rise?

A: Bond is financial security used by organizations to raise debt funds. Bond carries fixed coupon that…

Q: Assume that inflation is expected to rise soon. How could this affect future bond prices? Would you…

A: Inflation affects bond’s interest rate and interest rate in turns affect the bond prices. There is…

Q: Does interest rate risk matter or is it negligible? Why/why not? Will it be important for one who is…

A: Interest rate risk : In simple words, the risk of losing value in a bond investment or in loan taken…

Q: Which of the following is TRUE concerning the distinction between interest rates and returns? Select…

A: The Rate of return refers to a rate at which return is generated which is based on the initial…