If interest rates were to increase, then [select the statement that is most correct] Only long term bonds will experience a price increase Both long and short term bonds will exerience a price decrease, but long term bonds will drop in price more than short term. Both long and short term bonds will exerience a price decrease, but short term bonds will drop in price more than long term. only long term bonds will experience a price decrease All bonds will experience a price increase

If interest rates were to increase, then [select the statement that is most correct] Only long term bonds will experience a price increase Both long and short term bonds will exerience a price decrease, but long term bonds will drop in price more than short term. Both long and short term bonds will exerience a price decrease, but short term bonds will drop in price more than long term. only long term bonds will experience a price decrease All bonds will experience a price 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...

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Similar questions

Long-term bonds fluctuate more than short-term bonds as interest rates rise, making them a riskier investment. When interest rates rise, bond prices fall. A bond's coupon rate or interest rate determines the annual payment to the issuer. what does this mean?
Assume that inflation is expected to rise soon. How could this affect future bond prices? Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation?
Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation that the inflation is expected to decline in the near future? Explain.
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 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
Prices of long-term bonds are more volatile than prices of short-term bonds. However, yields to maturity of short-term bonds fluctuate more than yields of long-term bonds. How do you reconcile these two empirical observations?
When the interest rate on newly issued bonds increases, the price of existing bonds: Group of answer choices. increases increases only if the coupon rate is below the new rate decreases may either increase or decrease
Which of the following statements is CORRECT? a. If the Federal Reserve unexpectedly announces that it expects inflation to increase, then we would probably observe an immediate increase in bond prices. b. The total yield on a bond is derived from dividends plus changes in the price of the bond. c. Bonds are generally regarded as being riskier than common stocks, therefore bonds have higher required returns. d. Bonds issued by larger companies always have lower yields to maturity (due to less risk) than bonds issued by smaller companies. e. The market price of a bond will always approach its par value as its maturity date approaches, provided the bond's required return remains constant. THE ANSWER IS NOT E OR B, apparently, but please let me know if you really think one of those choices are correct.
If interest rates in the economy are rising, the market value of previously issued bonds will a. uctuate wildly. b. stay the same. c. increase. d. decline
In the next period however, the interest rate changes unexpectedly to I’ . What is the new price of the bond? If the bond is sold at the beginning of that next period, what is the yield from the consol? Does the yield increase or decrease if I’ > i?
3. If interest rates rise, prices of short-term bonds will decline less than long-term bonds. Is this true or false? Why?