28 If the coupon rate is lower than current interest rates, then the yield to maturity will be: A higher than the coupon rate. lower than the coupon rate. equal to the coupon rate. lower than current interest rates. B. C D.
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- Question 9 If the expectations theory of the term structure of interest rates is correct and the other term structure theories are invalid, and if we observe a downward-sloping yield curve, which of the following is a true statement? Investors expect short-term rates to be constant over time. Investors expect short-term rates to increase in the future. Investors expect short-term rates to decrease in the future. Investors expect short-term rates to be unchanged in the future.Which of the following will increase if the coupon rate increases? I. face value II. market value III. yield-to-maturity IV. current yield12. Which of the following statements is most correct?a. If a bond’s yield to maturity exceeds its annual coupon, then thebond will be trading at a premium.b. If interest rates increase, the relative price change of a 10-yearcoupon bond will be greater than the relative price change of a 10-year zero coupon bond.c. If a coupon bond is selling at par, its current yield equals itsyield to maturity.d. Statements a and c are correct.e. None of the statements above is correct.
- (Using algabreic formula to answer) (a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today?(b) In the next period however, the interest rate changes unexpectedly to i'. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i' > i? (c) Suppose alternatively that the market expects that the interest rate will changeto i' after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period?6. A zero coupon bond will trade at a premium if the YTM is lower the current yield. Is this true or false? Why?(a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remainunchanged. What will be the price of the consol today? (b) In the next period however, the interest rate changes unexpectedly to i'. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i'> i? (c) Suppose alternatively that the market expects that the interest rate will change to i' after the initial period. What is the initial value of the consol, and whatis the yield from selling it after one period?
- Suppose you observe the following situation: Security Beta Expected Return Peat Company 1.70 13.60 Re - Peat Company 0.85 10.80 Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk - free rate?a) You hold a consol that pays a coupon in perpetuity. The current interest rate is i , and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? b) In the next period however, the interest rate changes unexpectedly to i 0. What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if 0 > i?(a) You hold a consol that pays a coupon C in perpetuity. The current interest rate is i, and the average expectation in the market is that this will remain unchanged. What will be the price of the consol today? (b) In the next period however, the interest rate changes unexpectedly to i 0 . What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if i 0 > i? (c) Suppose alternatively that the market expects that the interest rate will change to i 0 after the initial period. What is the initial value of the consol, and what is the yield from selling it after one period?
- 3 Suppose that without an adjustment for the relationship between the yield on a bond to be hedged and the yield on the hedging instrument the hedge ratio is 1.30. Answer the below questions. (a) Suppose that a yield beta of 0.8 is computed. What would the revised hedge ratio be? (b) Suppose that the standard deviation for the bond to be hedged and the hedging instrument are 0.09 and 0.10, respectively. What is the pure volatility adjustment, and what would be the revised hedge ratio?47. One of the points below is the most accurate?a. A 10-year 10% coupon bond has a lower chance of reinvestment than a 10-year 5% coupon bond (assuming all else equal).b. The net return on a bond over a specified year is comprised by both the year's coupon interest payments and the shift in the bond's valuation from the start of the end of the year.c. The price of a 20-year 10% bond is less susceptible to interest rate fluctuations (and hence has less interest rate risk) than the price of a 5-year 10% bond.d. A $1,000 bond with $100 nominal interest payments and a five-year term (not likely to default) will sell for a discount if interest rates were below 9% and for a profit if interest rates were above 11%.e. All of the statements a, b, and c are true.37 Which of the following observations is the most accurate? 37. a. If the required return on a bond with equivalent risk is 8%, a bond with a coupon rate of 10% may sell at a disadvantage if all other factors are identical.b. Assuming that the bond's yield to maturity stays stable over time, the price of a discount bond would rise.c. A bond's net return for a specified year is made up entirely of coupon interest payments.d. Both b and c are valid statements.e. All of the above claims are true.