Corporate Finance
12th Edition
ISBN: 9781259918940
Author: Ross, Stephen A.
Publisher: Mcgraw-hill Education,
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Question
Chapter 8, Problem 2CQ
Summary Introduction
To determine: The bond with which greater interest rate risk is associated.
Treasury Bonds:
Treasury bonds are those government bonds that have a fixed interest rate and they are traded in the market. These are securities of a maturity period of more than 10 years.
BB Corporate bonds:
These bonds are the bonds that are issued by a corporation. As these bonds have a risk factor associated with them, they pay higher rates than the government or the municipal bonds.
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What is interest rate (or price) risk? Which bondhas more interest rate risk: an annual payment1-year bond or a 10-year bond? Why?
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A.
30-year Treasuries
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Chapter 8 Solutions
Corporate Finance
Ch. 8 - Prob. 1CQCh. 8 - Prob. 2CQCh. 8 - Prob. 3CQCh. 8 - Yield to Maturity Treasury bid and ask quotes are...Ch. 8 - Coupon Rate How does a bond issuer decide on the...Ch. 8 - Real and Nominal Returns Are there any...Ch. 8 - Prob. 7CQCh. 8 - Prob. 8CQCh. 8 - Term Structure What is the difference between the...Ch. 8 - Crossover Bonds Looking back at the crossover...
Ch. 8 - Municipal Bonds Why is it that municipal bonds are...Ch. 8 - Prob. 12CQCh. 8 - Treasury Market Take a look back at Figure 8.4....Ch. 8 - Prob. 14CQCh. 8 - Bonds as Equity The 100-year bonds we discussed in...Ch. 8 - Bond Prices versus Yields a. What is the...Ch. 8 - Interest Rate Risk All else being the same, which...Ch. 8 - Prob. 1QAPCh. 8 - Prob. 2QAPCh. 8 - Prob. 3QAPCh. 8 - Prob. 4QAPCh. 8 - Prob. 5QAPCh. 8 - Prob. 6QAPCh. 8 - Prob. 7QAPCh. 8 - Prob. 8QAPCh. 8 - Prob. 9QAPCh. 8 - Prob. 10QAPCh. 8 - Prob. 11QAPCh. 8 - Prob. 12QAPCh. 8 - Prob. 13QAPCh. 8 - Prob. 14QAPCh. 8 - Prob. 15QAPCh. 8 - Prob. 16QAPCh. 8 - Prob. 17QAPCh. 8 - Prob. 18QAPCh. 8 - Prob. 19QAPCh. 8 - Prob. 20QAPCh. 8 - Prob. 21QAPCh. 8 - Prob. 22QAPCh. 8 - Prob. 23QAPCh. 8 - Prob. 24QAPCh. 8 - Prob. 25QAPCh. 8 - Prob. 26QAPCh. 8 - Prob. 27QAPCh. 8 - Prob. 28QAPCh. 8 - Prob. 29QAPCh. 8 - Prob. 30QAPCh. 8 - Prob. 31QAPCh. 8 - Prob. 32QAPCh. 8 - Prob. 33QAPCh. 8 - Prob. 34QAPCh. 8 - Prob. 35QAPCh. 8 - Prob. 1MCCh. 8 - Prob. 3MCCh. 8 - Prob. 5MCCh. 8 - Prob. 6MCCh. 8 - Prob. 7MC
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Similar questions
- Which one of the following bond values will change when interest rates change? The expected cash flows The present value The coupon payment The maturity valuearrow_forwardIf interest rates increase after a bond issue, the yield-to-maturity will ______,arrow_forwardWhy is it an interest rate risk when investing in long-term bonds?arrow_forward
- 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 changearrow_forwardIn order to measure the purchase price of an investment in bonds, which of the following time value of money concepts is used? Group of answer choices the future value of $1 the present value of an ordinary annuity all of these the future value of an ordinary annuityarrow_forwardTrue or false? the YTM is the annual return that an investor earns on a bond of the investor purchases the bond today and sells it before maturityarrow_forward
- what is the formula for caculation the rate on long-term Treasury bonds?arrow_forwardWhat are your thoughts about buying short term bonds vs. long term bonds in this economic situation?arrow_forwardThe rate of return on a bond held to its maturity date is called the bond’syield to maturity. If interest rates in the economy rise after a bond hasbeen issued, what will happen to the bond’s price and to its YTM? Doesthe length of time to maturity affect the extent to which a given change ininterest rates will affect the bond’s price? Why or why not?arrow_forward
- What is a maturity risk premium? Group of answer choices -A premium that reflects interest rate risk. -The risk of capital losses to which investors are exposed because of changing interest rates. -The difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity. -The rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expected.arrow_forwardThe rate of return that you would earn if you bought a bond and held it to its maturity date is called the bond’s yield to maturity, or YTM. If interest rates in the economy rise after a bond has been issued, what will happen to the bond’s price and to its YTM? Does the length of time to maturity affect the extent to which a given change in interest rates will affect the bond’s price?arrow_forwardThe rate of return on which one of the following has a risk premium of 0%? Multiple Choice Long-term government bonds Long-term corporate bonds Intermediate-term government bonds U.S. Treasury bills Large-company stocksarrow_forward
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