Question 13 Which of the following statements is true? O Discount yield is always lower than bond equivalent yield on the same security. O Discount yield is always higher than bond equivalent yield on the same security. ODiscount yield is always equal to bond equivalent yield on the same security. O Discount yield can be lower or higher than bond equivalent yield on the same security.

Question 13 Which of the following statements is true? O Discount yield is always lower than bond equivalent yield on the same security. O Discount yield is always higher than bond equivalent yield on the same security. ODiscount yield is always equal to bond equivalent yield on the same security. O Discount yield can be lower or higher than bond equivalent yield on the same security.

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

9th Edition

ISBN:9781305635937

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter7: Bonds And Their Valuation

Section: Chapter Questions

Problem 3DQ: Looking at the bond issue selected, why are the current yield and yield to maturity numbers...

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QUESTION 8 When a bond is sold below its face value, then we know that: A. Yield to maturity is higher than the coupon rate B. Yield to maturity is lower than the coupon rate
49 Which of the following statements is the most accurate? 49.a. A bond's discount to maturity is smaller than the coupon rate if it buys for less than par.b. A bond's actual yield would be smaller than the yield to maturity if it sells at par.c. Assuming both bonds are kept to maturity and have the same risk, a bond selling at greater than par for a 10-year maturity would have a lower current yield and a higher capital gain than a bond selling at par.d. Both statements a and c are true.e. None of the above assertions are true.
7. Determinants of market interest rates Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the rate for a riskless security that is exposed to changes in inflation. This is the premium that reflects the risk associated with changes in interest rates for a long-term security. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. This is the rate on short-term US Treasury securities, assuming there is no inflation. Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. It is based on the bond’s rating; the higher the rating, the lower the premium added, thus lowering the…
Q20 If the market price of a bond is greater than the intrinsic value of bond, then the bond is evaluated as a. Bond is undervalued and can buy b. Bond is undervalued and can sell c. Bond is overvalued and can buy d. Bond is overvalued and can sell
4. Bond valuation The 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 bondwill pay, and a bondholder’s required return reflects the return that a bondholderis obligated to receive from a given investment. The mathematics of bond valuation imply a predictable relationship between the bond’s…
12. Which of the following statements is most correct?a. If a bond’s yield to maturity exceeds its annual coupon, then thebond will be trading at a premium.b. If interest rates increase, the relative price change of a 10-yearcoupon bond will be greater than the relative price change of a 10-year zero coupon bond.c. If a coupon bond is selling at par, its current yield equals itsyield to maturity.d. Statements a and c are correct.e. None of the statements above is correct.
14. Bond ABC has a current yield of 5% and Bond DEF has a current yield of 7%.If the market price of both bonds is similar, then the YTM on Bond DEF should be higher than the YTM on Bond ABC. Is this true or false? Why?
4. A particular security’s equilibrium rate of return is 8 percent. For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 3.5 percent. The security’s liquidity risk premium is .25 percent and maturity risk premium is .85 percent. The security has no special covenants. Calculate the security’s default risk premium.
H4. Which statement is true? a. Duration is good for estimating the impact of large interest rate changes. b. The duration estimate is less accurate, the less convex the bond price/yield relationship. c. Effective duration is used to measure the price risk of the bonds with call options. d. The tangent line always overestimates the actual price
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36. One of the points below is the most accurate?a. When a bond sells at a premium, that means that the bond's yield to maturity is higher than the coupon rate.b. A coupon bond's present yield matches the yield to maturity whether it is sold at par.c. A zero coupon bond could sell for more than its par value if interest rates fell after it is issued.d. Both b and c are valid statements.e. None of the above claims are true.
Q. 9 The higher the market yield (R) relative to coupon rate: The higher the duration of a bond and the lower the price of the bond. The higher the price of a bond. The lower the duration of a bond and the higher the price of the bond The lower the duration of a bond and the lower the price of the bond Market yield has no impact on a bond’s duration.