Question 19 1 pts Which of the following shocks will decrease the demand for bonds? Select all that apply. The expected return on real estate rises. The volatility of bond returns increases. The expected return on equities falls. Expected inflation decreases. Investor wealth falls.
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- 34. When interest rate decreases, the portfolio manager should a. decrease the duration of the bond portfolio b. increase the duration of the bond portfolio c. do nothing d. noneQ No. 1 Explain why you agree or disagree with the following statements. Treasury bonds are riskier than corporate bonds. All other things held constant; the future value of an ordinary annuity is always having a higher future value than annuity due. All other things held constant, the price or interest rate risk of short-term bond is always lower than long-term bond.[S1] Prices of existing bonds move upward as marketinterest rates move downward. [S2] Assuming the samenominal interest rate, the investment with the higher riskwill have a higher value.
- 37. Statement 1: Everything else equal, an effective annual rate will be greater than the bond equivalent yield on the same security.Statement 2: Money markets exist to help reduce the opportunity cost of holding cash balances. a. Both statements are true b. Statement 1 is true; Statement 2 is false c. Statement 1 is false; statement 2 is true d. Both statements are falseD3) Finance Suppose Bond A carried a higher yield than comparable Bond B because of investors’ uncertainty about the future of company B. If you were an investment manager who thought the market was overplaying these fears. In particular, if you thought that yields on Bond A would fall by 50 basis points. Which bonds would you buy or sell? Explain in words.7. A. Define duration and explain how duration is used in the management of a portfolio of financial securities. B. Why is duration a better measurement of interest rate risk than the time it takes to reduce the principal balance on a loan by 50%? C. How does maturity and yield affect the sensitivity of a financial security to changes in interest rates?
- 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.3. (T/F) If interest rates rise, prices of short-term bonds will decline less than long-term bonds57. Which of the following statements is incorrect about bonds? In all ofthe statements, assume other things are held constant.a. Price sensitivity, that is, the change in price due to a given changein the required rate of return, increases as a bond’s maturityincreases.b. For a given bond of any maturity, a given percentage point increasein the interest rate (kd) causes a larger dollar capital loss thanthe capital gain stemming from an identical decrease in the interestrate.c. For any given maturity, a given percentage point increase in theinterest rate causes a smaller dollar capital loss than the capitalgain stemming from an identical decrease in the interest rate.d. From a borrower’s point of view, interest paid on bonds is taxdeductible.e. A 20-year zero coupon bond has less reinvestment rate risk than a 20-year coupon bond.