Which of the following statements is/are most CORRECT?O 11 A yield curve depicts the relationship between bond's 'time to maturity andits yield to maturity.2) A premium bond's price will decline over time if the required return remainsunchanged.3)A discount bond's price will decline over time if the required return remainsunchanged.4) Both a and b are correct.

Bond: Bond is a kind of debt instrument typically issued by corporations, government organizations…

Which of the following statements is/are most CORRECT? O 1) A yield curve depicts the relationship between bond's time to maturity and its yield to maturity. O 2) A premium bond's price will decline over time if the required return remains unchanged. O 3 A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.

Which of the following statements is/are most CORRECT? O 1) A yield curve depicts the relationship between bond's time to maturity and its yield to maturity. O 2) A premium bond's price will decline over time if the required return remains unchanged. O 3 A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter7: Bonds And Their Valuation

Section: Chapter Questions

Problem 3DQ: Looking at the bond issue selected, why are the current yield and yield to maturity numbers...

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According to the expectations theory of the term structure, O a when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. O b. when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future. O c. buyers of bonds prefer short-term to long-term bonds. O d. all of the above. O e. only A and B of the above.
Which of the following statements are most likely to be true? 1. The only factor that has an impact on a bond's price is its yield to maturity. II. Bond prices and market interest rates move in the opposite direction. III. As time passes and a bond approaches its maturity date, its (ex-coupon) price will converge to its face value. Group of answer choices I and Il only. I and III only. Il and III only. I, Il and II. 3) A company has a bank loan outstanding that requires it to make annual payments of $1,000,000 at the end of each of the next three years. The bank has offered to the company to skip the next two payments and instead make a single payment at the end of the loan's term in three years' time. If the interest rate on the loan is 6% p.a., compounded quarterly, the final payment that will make the company indifferent between the two payment options is closest to: Group of answer choices $2,666,283. $2,673,012. $3,183,600. $3,187,856. 2)
Which of the following is TRUE concerning the distinction between interest rates and returns? Select one: a. The rate of return will be greater than the interest rate when the price of the bond falls during the holding period. b. The return can be expressed as the difference between the current yield and the rate of capital gains. c. The rate of return on a bond will not necessarily equal the interest rate on that bond. d. The return can be expressed as the sum of the discount yield and the rate of capital gains
H4. Which statement is true? a. Duration is good for estimating the impact of large interest rate changes. b. The duration estimate is less accurate, the less convex the bond price/yield relationship. c. Effective duration is used to measure the price risk of the bonds with call options. d. The tangent line always overestimates the actual price
Which 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.
which one is correct please confirm? QUESTION 38 The term structure of interest rates is the pattern of interest rate yields for securities that differ only in ____. a. the yield to maturity b. liquidity premiums c. the length of time to maturity d. default risk
1. Use the following statements to answer questions 1-2. Statement 1: Modified duration is a better measure for a bond’s sensitivity for shaping risk than key rate duration. Statement 2: Effective duration is a better measure for a bond with an embedded option than modified duration. Statement 3: Spread duration is a measure of the risk-free rate change. Statement 4: Modified duration is a measure of curve duration. A. Statement 3 B. Statement 4 C. Both statement 3 and 4 D. Neither statement
4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond’s intrinsic value and its par value. This also results from the relationship between a bond’s coupon rate and a bondholder’s required rate of return. Remember, a bond’s coupon rate partially determines the interest-based return that a bondwill pay, and a bondholder’s required return reflects the return that a bondholderis obligated to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond’s…
4. Bond valuation The process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic value and its par value. This also results from the relationship between a bond's coupon rate and a bondholder's required rate of return. Remember, a bond's coupon rate partially determines the interest-based return that a bond i reflects the return that a bondholder to receive from a given investment. pay, and a bondholder's required return The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required…
The inverted yield curve predicts that bond prices will fall. Select one: True OR False
7. Explain in detail, in terms of current yield, capital gain yields and YTM, why: a) If YTM = coupon rate, bond price = par value? b) If YTM > coupon rate, then bond price < par value? c) IF YTM < coupon rate, then bond price > par value? AND also give the name of the bond in each scenario.
2. Bond valuation The proces value of the cash flows that the security will generate in the future s of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present There is a consistent and predictable relationship between a bond's coupon rate, its par value, a bondholder's required return, and the bond's resulting intrinsic value. value and its par value. These result from the relationship between a bond's coupon rate and a bondholder's required rate of return Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond's intrinsic pay, and a bondholder's required return Remember, a bond's coupon rate partially determines the interest-based return that a bond reflects the return that a bondholder to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond's coupon rate, the bondholder's required return,…