Anna-Mae Inc is going to issue a bond whereby they would pay a coupon with rate equal to the markets required yield to maturity. As a result, the bond would be priced: A) greater than face value B) less than face value C) equal to face value
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Anna-Mae Inc is going to issue a bond whereby they would pay a coupon with rate equal to the markets required yield to maturity. As a result, the bond would be priced:
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- If the pure expectations theory of the term structure is correct, which of the following statements would be CORRECT? a. If a 1-year Treasury bill has a yield to maturity of 7% and a 2-year Treasury bill has a yield to maturity of 8%, this would imply the market believes that 1-year rates will be 7.5% one year from now. b. The yield on a 5-year corporate bond should always exceed the yield on a 3-year Treasury bond. c. Interest rate (price) risk is higher on long-term bonds, but reinvestment rate risk is higher on short-term bonds. d. An upward-sloping yield curve would imply that interest rates are expected to be lower in the future. e. Interest rate (price) risk is higher on short-term bonds, but reinvestment rate risk is higher on long-term bondsGeneral Matter’s outstanding bond issue has a coupon rate of 9.2%, and it sells at a yield to maturity of 7.60%. The firm wishes to issue additional bonds to the public. What coupon rate must the new bonds offer in order to sell at face value?The Expectations theory suggests that under certain conditions all bonds outstanding, especially Treasury bonds, must have identical total returns over a 1-year holding period, independently of their final maturity. suppose that today’s interest rate on a 2-year default free zero-coupon Treasury bond that pays $100 at maturity (0i0,2) is 6%. What is today’s price of such a bond (that is, what would you pay to purchase such a bond)?
- If the bondholder's required rate of return equals the coupon interest rate, the bond will sell at ..................The respective maturities of these newly issued debt instruments are approximately equivalent. Which one of the investments in the portfolio would be subject to the greatest relative amount of price volatility if interest rates were to change quickly a. Treasury bond.b. Zero-coupon bond.c. Corporate bond.d. Municipal bond.Which of the following statements is correct assuming same market rates for all maturities (flat yield curve)? e a Extendible bonds allow bond issuer to extend the maturity date. O b. Callable bonds give the bond issuer an option to call the bond back before the maturity date at a predetermined price. Oc. When the market yield is equal to a bond's stated coupon rate, the bond's current yield is greater than its coupon yield. Od. The cash price plus the accrued interest on the bond is the quoted price of the bond. Current yield is the ratio of annual coupon payment divided by the par value. o e.
- If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _______________. A premium bond sells for ____________ as maturity approaches. The discount bond sells for ____________ as maturity approaches.If investors are uncertain that a corporate bond issuer will make all of the bond payments as promised, the investors will demand a higher yield in the form of: Select one: a. An increased real rate of interest. b. An increased interest rate risk premium. c. An increased default risk premium. d. An increased inflation premium. e. An increased liquidity risk premium.You expect market interest rates to increase, while the rest of the market believes there will be a decrease. Which of the following statements about fixed-coupon bonds is most correct? a. Bond yields and prices are expected to rise b. At the maturity date, regardless of changes in market interest rates, a bond price will be equal to the face value plus the coupon. c. You expect the company to increase the coupon payment in response to the increase in market rates. d. As the coupons are fixed, the interest rate change will have no impact on the bond. e. You should invest in long-term bonds rather than short-term securities
- Which of the following statements correctly describes the relationship between a long-term bond’s market value, its coupon rate and the relevant yield to maturity? A. When bonds are initially issued, the coupon rate is generally set equal to the required yield to maturity so that the company can issue the bonds at their face value. B. If at any point in the bond’s life its coupon rate is less than the market determined yield to maturity, its market value at that time will be less than the face value of the bond. C. More than one of the other statements are correct D. A government bond with a fixed coupon rate may be valued below its’ face value even though the promised cash flows are effectively riskless. E. None of the other statements are correct Is "B" is the correct answer?Coupon payments are fixed, but the percentage return that investors receive varies based on market conditions. This percentage return is referred to as the bond’s yield. Q1. Yield to maturity (YTM) is the rate of return expected from a bond held until its maturity date. However, the YTM equals the expected rate of return under certain assumptions. Which of the following is one of those assumptions? a. The bond is callable. b. The probability of default is zero. Consider the case of RTE Inc: Q2. RTE Inc. has 9% annual coupon bonds that are callable and have 18 years left until maturity. The bonds have a par value of $1,000, and their current market price is $1,130.35. However, RTE Inc. may call the bonds in eight years at a call price of $1,060. What are the YTM and the yield to call (YTC) on RTE Inc.’s bonds? Value YTM ? YTC ? Q3. If interest rates are expected to remain constant, what is the best estimate of the remaining life left for RTE Inc.’s bonds? a. 8 years b. 10…Compute the Macaulay duration under the following conditions: a. A bond with a four-year term to maturity, a 10 percent coupon (annual payments), and a market yield of 8 percent. b. A bond with a four-year term to maturity, a 10 percent coupon (annual payments), and a market yield of 12 percent. c. Compare your answers to parts (a) and (b), and discuss the implications of this for classical immunization.