LExplain what happens to the bond price and interest rate and why. i) i1) ii1) Expected inflation increases The return on other assets rises relative to bond Government deficit increases
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- Explain how a 1% increase/decrease in interest rates would affect the price of coropate bonds.Which of the following would have inflationary effect on the economy? [1] BSP releasing new bonds in the market [2] BSP decreasing the repo rate [3] BSP increasing the bank rate. * A.) 1 only B.) 2 only C.) 1 and 2 D.) 2 and 3Assume 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?
- N1 Q21. Which of the following statements about bonds are true? a. The bond price and yield of the bonds are positively related. b. Long-term bonds are more responsive to interest rate change than short-term bonds. c. All other answers are correct. d. If interest rates are expected to decrease, more investors will prefer holding short-term bonds.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.why the increases in bond price are larger than the decreases in terms of dollars for the same change (say, 1% change) in the market interest rate
- The rate of return on a bond held to its maturity date is called the bond’syield to maturity. If interest rates in the economy rise after a bond hasbeen issued, what will happen to the bond’s price and to its YTM? Doesthe length of time to maturity affect the extent to which a given change ininterest rates will affect the bond’s price? Why or why not?Explain why an increase in the inflation rate will cause the yield to maturity on a bond to increase.The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
- Which of the following would result in a decrease in bond prices? Question 8 options: Interest rates decrease. Time passes and a discount bond moves closer to maturity. The bond rating of a bond changes from BBB to C.(I) Because interest rates on Treasury bills are more volatile than rates on long-term securities, the return on short-term Treasury securities is usually above that on longer-term Treasury securities. (II) A Treasury STRIP separates the periodic interest payments from the final principal repayment. A. (I) is true, (II) false. B. (I) is false, (II) true. C. Both are true. D. Both are false.1. When inflation increases, does that increase, decrease, or have no effect on the credit spread for a corporate bond?
