Explain whether the following statements are true or false. Justify your answer. 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.

Explain whether the following statements are true or false. Justify your answer. 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.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...

See similar textbooks

Related questions

Q: The higher the credit rating, the __________ the bond, the __________ the default probability, and…

A: Consequently, bonds with the highest quality credit ratings always carry the lowest yields; bonds…

Q: If you expect the interest rate to fall, which bond will give you the highest price appreciation?…

A: A bond is a debt instrument that is issued by the organization to raise the funds from the investor…

Q: (e) Do you agree with the following statement, and explain why? "If two bonds have the same…

A: Please find the answers to the above questions below:

Q: i. How would you expect the price of the callable bond to compare to that of the non-callable bond?…

A: Callable bond is a bond which can be redeemed before the period of maturity. It is also called as…

Q: e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell…

A: If the bondholder’s required rate of return equals the coupon interest rate, the bondwill sell at…

Q: Please describe the different type of bonds and compare the yields associated with each type of…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: 2. For each of the following situation, identify whether a bond would be considered a premium bond,…

A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…

Q: A "discount bond" has a price less than face value because ________________. A) the issuing firm…

A: Discount Bond - Discount bond is something which is issued below its Par value, but it does not mean…

Q: One of the points below is the most accurate? a. When a bond sells at a premium, that means that the…

A: Please find the answer to the above question below:

Q: Select one or more of the following phrases to complete this question: increase , decrease, par,…

A: Part a) As interest rate increases the value of a bond will decrease When the interest on bond…

Q: Which of the following statement on bond valuation is correct? A. If bond price is greater than…

A: Bonds are a form of loan or debt that is being taken by the business. Regular interest payments…

Q: Briefly describe why investors should buy high-quality (non-speculative) bonds based on…

A: Bonds are fixed income instruments and are rated according to their risk of default by independent…

Q: Discuss the advantages and disadvantages of each type of coupon bond in a high interest rates…

A: Bond is a type of fixed income instrument which represents a certain amount borrowed by the borrower…

Q: If you buy a callable bond and interest rates decline, will the value of your bond rise by asmuch as…

A: Bond valuation refers to the evaluation of bond value at any point of time, which can be used for…

Q: The following statements describe the general characteristics of price of the coupon bond. Which one…

A: The price of bond = sum of the present value of coupons + present value of face value when the…

Q: Which of the following conditions will increase the interest rate risk on a bond? shorter time to…

A: Interest rate risk is referred to as the potential regarding an investment losses due to the change…

Q: The process of bond valuation is based on the fundamental concept that the current price of a…

A: Hi, since there are multiple questions posted, we will answer the first three sub-part questions. If…

Q: nterest rate risk refers to changes in the bond's ______________ (coupon rate, credit rating,…

A: Interest rate risk: It refers to the risk occured with changes in interest rate. It is also known as…

Q: Which type of bonds offer a higher yield? Callable bonds Noncallable bonds Answer the following…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Which of the following is correct? Group of answer choices 1. The lower the price you pay for a…

A: An overpriced bond is one whose price is more than its value. Therefore, 2nd option is incorrect.…

Q: Which one of the following statements is true regarding bond valuation? a. When yield to maturity is…

A: Solution:- Bond value means the value at which the bond trades currently trades in the market. It…

Q: State whether the following statement is True or False and explain why. “A bond’s price is higher…

A: Generally, when the bonds fixed coupon rate is the amount of fixed annual interest paid by the…

Q: If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at…

A: Bonds are instrument issued by company acknowledging the debt raised by company . It is a liability…

Q: Explain the differences between a bond's yield to maturity (YTM) and its yield to call (YTC). Is…

A: Introduction: The following are the distinctions between the yield to maturity and the profit to…

Q: he following statements is TRUE? emand for a bond declines when it becomes less liquid, decreasing…

A: A liquid asset is one that can be converted to cash quickly and easily. Liquid assets include cash,…

Q: Explain whether the following statements are true or false. Justify your answer. a) If interest…

A: Bonds act as long-term debt for the issuer as the issuer is under the obligation to pay regular…

Q: The rate of return that you would earn if you bought a bond and held it to its maturity date is…

A: If interest rates in the economy rises then the yield to maturity (YTM) will also rise because YTM…

Q: Explain whether the following statements are true or false. Justify your answer and solve all the…

A: The bond refers to the debt security issued by the companies to raise the funds at low rates. The…

Q: We learned that if the market interest rate for a given bond increased, the price of the bond would…

A: a) When the risk aversion of investors starts decreasing, it indicates that they now assume that…

Q: Bond Relationships. Select one or more of the following phrases to complete the following sentences.…

A: price of bond is inversely proportional to the interest rate.

Q: Discuss the main types of bonds based on their coupons.

A: Since, you asked multiple questions, we will answer first question for you as per guidelines. Kindly…

Q: 1)Which of the following is NOT true regarding bonds?

A: NOTE: As per our policy, we only answer one question when different questions are posted. Therefore…

Q: Bond Relationships. Select one or more of the following phrases to complete the following sentences.…

A: Bond is a contract under which a borrower promises to pay interest and principal on a specific dates…

Q: Which of the following statements is/are most CORRECT? O 1) A yield curve depicts the relationship…

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

Q: We know that a vanilla bond with a coupon rate below the market rate of interest will sell for a…

A: Bond is the debt instrument issued by the borrowers to raise funds from various investors. Usually…

Q: Check all that are true with respect to the yield to maturity (YTM) and the expected return for a…

A: Yeild to maturity is calculated by considering amount predetermined fixed future payments. It is…

Q: Describe the differences between the yield to maturity (YTM) and the yield to call (YTC) on a bond.…

A: The differences between the yield to maturity and the yield to call on a bond are:

Q: Which of the follwing statement is correct. As the credit risk of a bond increases: A. The YTM…

A: Credit risk is risk of default of bond issues and as credit increase the required rate on bonds…

Q: Which of the following claims is true? a. Long-term bonds have lower interest rate risk than…

A: First, we will discuss all the false claims - a) Long-term bonds have lower interest rate risk than…

Q: how will the modified duretion of a floating coupon bond be compared to the modified duration of a…

A: A bond is a financial product that represents a loan that an investor makes to a borrower (usually a…

Q: If you pay a price to buy a bond that is below its value, you will get a return that is lower than…

A: The statement is false

Q: the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________.

A: A Bond can generally sell at par, discount or premium

Q: Coupon payments are fixed, but the percentage return that investors receive varies based on market…

A: Given: Coupon rate 9% Number of years to maturity 18 Years Par value 1000 Current…

Q: For a conventional bond paying a fixed coupon rate, an INCREASE in the risk of default would lead…

A: Default risk: Default risk can be defined as the risk that the borrower of the money will not pay…

Q: A bond has a market price that exceeds its face value. Which one of these features currently applies…

A: The price of the bond is dependent upon the face value, coupon rate, yield to maturity and duration…

Q: Bond Relationships. Select one or more of the following phrases to complete the following sentences.…

A: Bonds are a form of debt of the company. When bonds are issued at a value less than its face value,…

Question

Explain whether the following statements are true or false. Justify your answer.

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.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

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 risk
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.
Explain whether the following statements are true or false. Justify your answer. 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 risk d) The income from bond is more uncertain compared to the income from shares e) Managers want to maximize the intrisic value of the stock not the market price of the stock.
Explain how does a bond par value differs from its market value? Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.
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.
Rate the following statement as True of False: "Although, Convexity is listed as a 'risk' to bond investors, it is actually a benefit to investors who own bonds. This is because when a bond has high convexity an investor will make more money for a given drop in interest rates, than he or she will lose given the same magnitude increase in interest rates. Thus, more convexity means more potential upside relative to downside for a bond investor, given that yields are equally likely to move up or down by the same amount." True of False?
Explain whether the following statements are true or false. Justify your answer. a) If interest rate increase the price of a shorter maturity bond will decrease more then a longer maturity bond.
A bondholder with a short-term bond is exposed to ______________ interest rate risk than when owing a long-term bond. When interest rates __________, the market required rates of return ________, and the bond prices will ________.
Select one or more of the following phrases to complete this question: increase , decrease, par, discount, premium, less than, more than, greater , less, fall, rise As interest rate increases the value of a bond will ______________. When interest rates __________, the market required rates of return ________, and thebond prices will ________. If interest rates increase after a bond issue, the yield-to-maturity will ______,
Which one of the following statements is NOT true? As interest rates increase, bond prices increase. Interest rate risk is the risk that bond prices will change as interest rates change. Interest rate changes and bond prices are inversely related. Long-term bonds have more price volatility than short-term bonds of similar risk
Which of the following statement on bond valuation is correct? A. If bond price is greater than bond face value, the bond is mispriced and no investor will be interested in the bond. B. If YTM is greater than coupon rate, the bond price is greater than the bond face value. C. If the coupon rate is greater than the YTM, the bond price is less than the bond face value. D. If the coupon rate is less than the YTM, the bond price is less than the bond face value.
When would it make sense for a firm to call a bond issue? A) when the market price of the bond exceeds the call price, and market interest rates are greater than the bond's coupon rate B) when the market price of the bond exceeds the call price, and market interest rates are less than the bond's coupon rate C) when the market price of the bond is less than the call price, and market interest rates are greater than the bond's coupon rate D) when the market price of the bond is less than the call price, and market interest rates are less than the bond's coupon rate