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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.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.The method used to value a default-free zero coupon bonds (such as T-bills) requires that the interest is deducted from the face value of the bonds in advance. a.rediscounting b.market price c.forward price d.discount interest
- The yield to maturity on a bond is A. below the coupon rate when the bond sells at a discount and equal to the coupon rate when the bond sells at a premium. B. the discount rate that will set the present value of the payments equal to the bond price. C. None of the options are correct. D. based on the assumption that any payments received are reinvested at the coupon rate.(a) Do you agree with the following statement, and explain why? “If two bonds have the same duration, then the percentage change in price of the two bonds will be the same for a given change in interest rates.” (b) Discuss the problems with the traditional bond pricing approach by using the yield to maturity. (300 words)Which of the following statements about the Macaulay duration of a coupon bond is true? Select one alternative: a.. The duration does not change after the bond is issued. b. The duration will decrease as the yield to maturity decreases. c. None of the other statements is true. d. The duration can precisely predict the price change of the bond for any interest rate change.
- A bond has a market price that exceeds its face value. Which one of these features currently applies to this bond? Group of answer choices Yield to maturity greater than coupon rate. Currently selling at par. Yield to maturity less than the coupon rate. Yield to maturity equal to the coupon. Discount bond.A bond has a market price that exceeds its face value. Which one of these features currently applies tothis bond?Select one:a. Yield to maturity less than the coupon rate.b. Currently selling at par.c. Current yield greater than coupon rate.d. Yield to maturity equal to the current yield.e. Discount bond.In the context of coupon-paying bonds, which of the following are most likely determined bymarket forces?I. The current yield.II. The yield to maturity.III. The coupon rate. A. I only.B. II only.C. I and II only.D. I and III only
- how will the modified duretion of a floating coupon bond be compared to the modified duration of a fixed rate coupon bond? (same, higher or lower?) (floating coupon adjust coupon accotding to interest rate level, ie higher interest rate results in higher coupon payment)1.Identify whether each of the following bonds is trading at a discount, at par value,or at a premium. Calculate the prices of the bonds per 100 in par value. If the couponrate is deficient or excessive compared with the market discount rate, calculate the amount of the deficiency or excess per 100 of par value. Bond Coupon Payment per Period Number of Periods to Maturity Market Discount Rate per period A 2 6 3% B 6 4 4% C 5 5 5% D 0 10 2%Consider the following pure discount bonds with face value $1,000: Maturity Price 1 952.38 2 898.47 3 847.62 4 799.64 5 754.38 a). Find the spot rates and draw a yield curve.b). Assume that there is a constant liquidty premium that is equal to 1% across all maturities. Find the forward rates and the expected one period future interest rates.