PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 3, Problem 11PS
Duration* True or false? Explain.
- a. Longer-maturity bonds necessarily have longer durations.
- b. The longer a bond’s duration, the lower its volatility.
- c. Other things equal, the lower the bond coupon, the higher its volatility.
- d. If interest rates rise, bond durations rise also.
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3. Bond prices and yields (S3.1) Construct some simple examples to illustrate your answers to the following:
True or False: Assuming all else is equal, the shorter a bond's maturity, the more its price will change in response to a given change in interest rates.
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Chapter 3 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 3 - (PRICE) In February 2009, Treasury 8.5s of 2020...Ch. 3 - (YLD) On the same day, Treasury 3.5s of 2018 were...Ch. 3 - (DURATION) What was the duration of the Treasury...Ch. 3 - (MDURATION) What was the modified duration of the...Ch. 3 - Bond prices and yields A 10-year bond is issued...Ch. 3 - Bond prices and yields The following statements...Ch. 3 - Bond prices and yields Construct some simple...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year U.S. Treasury...
Ch. 3 - Bond returns If a bonds yield to maturity does not...Ch. 3 - Bond returns a. An 8%, five-year bond yields 6%....Ch. 3 - Prob. 10PSCh. 3 - Duration True or false? Explain. a....Ch. 3 - Duration Here are the prices of three bonds with...Ch. 3 - Duration Calculate the durations and volatilities...Ch. 3 - Prob. 14PSCh. 3 - Duration Find the spreadsheet for Table 3.4 in...Ch. 3 - Prob. 16PSCh. 3 - Spot interest rates and yields Which comes first...Ch. 3 - Prob. 18PSCh. 3 - Spot interest rates and yields Look again at Table...Ch. 3 - Prob. 20PSCh. 3 - Spot interest rates and yields Assume annual...Ch. 3 - Spot interest rates and yields A 6% six-year bond...Ch. 3 - Spot interest rates and yields Is the yield on...Ch. 3 - Prob. 24PSCh. 3 - Measuring term structure The following table shows...Ch. 3 - Term-structure theories The one-year spot interest...Ch. 3 - Term-structure theories Look again at the spot...Ch. 3 - Real interest rates The two-year interest rate is...Ch. 3 - Prob. 30PSCh. 3 - Bond ratings A bonds credit rating provides a...Ch. 3 - Prob. 32PSCh. 3 - Price and spot interest rates Find the arbitrage...Ch. 3 - Prob. 34PSCh. 3 - Prices and spot interest rates What spot interest...Ch. 3 - Prices and spot interest rates Look one more time...
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- Give typing answer with explanation and conclusionarrow_forward11. Duration (S3.2) True or false? Explain. a. Longer-maturity bonds necessarily have longer durations. b. The longer a bond's duration, the lower its volatility. c. Other things equal, the lower the bond coupon, the higher its volatility.arrow_forwardWhich of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.arrow_forward
- Which of the following bonds has the least reinvestment risk?A. A bond that has a higher coupon rate than the yield-to-maturityB. A bond that has a lower coupon rate than the yield-to-maturityC. A zero-coupon bondarrow_forwardHolding other factors constant, the interest-rate risk of a coupon bond is higher when the bond's: Select one: a. term-to-maturity is lower or coupon rate is lower or yield to maturity is higher O b. term-to-maturity is higher or coupon rate is higher or yield to maturity is lower Oc. term-to-maturity is lower or coupon rate is lower or yield to maturity is lower d. term-to-maturity is higher or coupon rate is lower or yield to maturity is higher e. None of the answers are correctarrow_forwardWhich 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.arrow_forward
- 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.arrow_forwardWhat’s TRUE regarding long-term and short-term bonds (assume they have the same par value and coupon rate)? A)Long-term bonds have higher interest rate risk. B)Short-term bonds have lower reinvestment risk. C)Long-term bonds have higher reinvestment risk. D)Short-term bonds have higher interest rate risk.arrow_forward1. Which of the following is correct? Group of answer choices 1. The lower the price you pay for a bond, the greater is your return. 2. A bond is overpriced when its value is greater than its price. 3. A fairly priced bond has a price equal to its face. 4. The value of a bond can be determined by the present value of all coupon payments and the present value of principal payment at maturity date.arrow_forward
- a bonds interest rate risk is lower if the bond has a _____ maturity and a ____ coupon ratearrow_forwardWhich one of the following statements is NOT true? As interest rates increase, bond prices increase. Interest rate risk is the risk that bond prices will change as interest rates change. Interest rate changes and bond prices are inversely related. Long-term bonds have more price volatility than short-term bonds of similar riskarrow_forwardAs 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.arrow_forward
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