Default risk refers to the value a bond investor will lose if the issuer defaults. It as a percentage is equal to one minus the recovery rate. Select one: True False
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Default risk refers to the value a bond investor will lose if the issuer defaults. It as a percentage is equal to one minus the recovery rate.
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- 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.The coupon rate is greater than the yield to maturity when a bond sells at a premium. Select one: True FalseIt is the interest rate that the buyer will actually earn if the bond is held to maturity and there is no default. A. yield to maturity B. no choice given c. current yield d. coupon discount rate e. coupon payment rate
- Explain whether the following statements are true or false. Justify your answer and solve all the three parts of this question a) If interest rate increase the price of a shorter maturity bond will decrease more then a longer maturity bond. b) If rating agencies downgrade a bond, the yield to maturiy on the bond will increase. c) the longer the duration of the bond, the higher will be the reinvestment riskBond ratings predict the probability of default. Select one: True OR FalseRisk free rate can be derived from a triple A rated commercial bonds and the estimated price of options is dependent on the expected return of an investor. true or false?
- Which of the follwing statement is correct. As the credit risk of a bond increases: The YTM falls and price of the bond falls The YTM increases and price of the bond falls The YTM falls and price of the bond rises The YTM increases and price of the bond rises unansweredInterest rate risk refers to changes in the bond's ______________ (coupon rate, credit rating, par value, or yield to maturity) , whereby a decrease in that item causes bond values to ___________ (increase, decrease, vary randomly, or remain constant )Choose from liquidity premium, taxability premium, default risk premium, maturity premium. 1.For a long term bond, bondholders demand a higher yield as compensation is called?2.When a bond has poor credit rating, bondholders demand a higher yield as compensation is called?3.When a bond has less frequent trading, bondholders demand a higher yield as compensation is called?
- Duration is a measurement of a bond’s interest rate risk. It is also referred to as the responsiveness or sensitivity of a bond’s full price to a change in its yield. Select one: True FalseA "discount bond" has a price less than face value because ________________. A) the issuing firm has a high probability of default B) the issuing firm has a low probability of default C) the bond coupon rate is greater than the yield to maturity D) the bond coupon rate is less than the yield to maturityIf you expect the interest rate to fall, which bond will give you the highest price appreciation? Group of answer choices High coupon, short maturity Zero coupon, short maturity Zero coupon, long maturity High coupon, long maturity
