hich one of the following attributes is favorable for the convertible bond arbitrage? low convexity high conversion premium low implied volatility high duration ow stock price volatil
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- low convexity
- high conversion premium
- low implied volatility
- high duration
- ow stock price volatility
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- Which one of the following attributes is favorable for the convertible bond arbitrage? low convexity high conversion premium low implied volatility high duration low stock price volatilityThe theoretical floor value for a convertible bond is its A. pure bond value. B. onversion price. C. conversion value. D. par value.What will happen to the hedge ratio of a convertible bond as the stock price becomes very large?
- What will be the price of a bond in which the YTM is higher than the coupon rate? a. Below face value b. At face value c. Above face value d. Cannot be determinedWhich of the following is NOT a defining quality of a standard bond cash flow? a) Coupon b) Maturity c) Perpetuity Cash Flow d) Face ValueA stock’s beta is a key input to hedging in the equity market. A bond’s duration is key in fixed-income hedging. How are they used similarly? Are there any differences in the calculations necessary to formulate a hedge position in each market?
- Explain the concept of bond price elasticity. Would bond price elasticity suggest a higher price sensitivity for zero-coupon bonds or high-coupon bonds that are offering the same yield to maturity? Why? What does this suggest about the market value volatility of mutual funds containing zero-coupon Treasury bonds versus high-coupon Treasury bonds?Which of the following is an advantage of floating rate bonds to investors? Group of answer choices A. Their market value tend to be highly stable regardless of interest rate changes. B. All of these options are correct. C. They are sold at a deep discount. D. They allow for locking in a multiplier of the initial investment.Money duration is the appropriate measure of interest rate risk for bonds with embedded options. Select one: True False
- Out of the following options below, which one has the lowest level of risk, and which one has the highest level of risk? Treasury billsCertificates of DepositCommercial paperTreasury notes and bondsMunicipal bondsCorporate bondsMortgage-and asset-backed securities Common stocksPreferred stocksThe process of bond valuation is based on the fundamental concept that the current price of a security can be determined by calculating the present value of the cash flows that the security will generate in the future. There is a consistent and predictable relationship between a bond’s coupon rate, its par value, a bondholder’s required return, and the bond’s resulting intrinsic value. Trading at a discount, trading at a premium, and trading at par refer to particular relationships between a bond’s intrinsic value and its par value. This also results from the relationship between a bond’s coupon rate and a bondholder’s required rate of return. Remember, a bond’s coupon rate partially determines the interest-based return that a bond Q1____pay, and a bondholder’s required return reflects the return that a bondholder Q2._______to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond’s coupon rate, the bondholder’s…
