rve is steeply upward-sloping, short-term interest urve is downward-sloping, short-term interest rates prefer short-term to long-term bonds.
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- Looking at the bond issue selected, why are the current yield and yield to maturity numbers different? Briefly explain in words the difference between these two terms.Assuming the pure expectations theory is correct, an upward-sloping yield curve implies:a. Interest rates are expected to increase in the future.b. Longer-term bonds are riskier than short-term bonds.c. Interest rates are expected to decline in the future.Which of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.
- Which one of the following statements about the term structure of interest rates is true? A) The expectations hypothesis predicts a flat yield curve if anticipated future short-term rates exceed current short-term rates. B) The liquidity premium theory contends that lenders prefer to buy securities at the ghort-term end of the curve. C) The expectations hypothesis contends that the long-term spot rate is equal to the short-term rate. D) The liquidity premium theory indicates that, all else being equal, longer maturity bonds will have lower yields.Assuming a mild preference for shorter-term bonds, the liquidity premium theory suggests that a flat yield curve is an indication of: A) constant short-term interest rates in the near and further future. B) a slight rise in short-term interest rates in the near future and a slight decline in the further future. C) constant short-term interest rates in the near future and a slight decline in the further future. D) a slight decline in short-term interest rates in the near and further future. Support your answer using a numerical example and explain carefully all the assumptions you make.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
- Select one or more of the following phrases to complete this question: increase , decrease, par, discount, premium, less than, more than, greater , less, fall, rise As interest rate increases the value of a bond will ______________. When interest rates __________, the market required rates of return ________, and thebond prices will ________. If interest rates increase after a bond issue, the yield-to-maturity will ______,Explain whether the following statements are true or false. Justify your answer. a) If interest rate increase the price of a shorter maturity bond will decrease more then a longer maturity bond. b) If rating agencies downgrade a bond, the yield to maturiy on the bond will increase.1)Which of the following is NOT true regarding bonds? Group of answer choices A)If a bond is selling at a discount, then the current yield is greater than the yield-to-maturity. B)An increase in market interest rates leads to a decrease in bond prices. C)If the coupon rate on a bond is lower than the yield-to-maturity, the bond sells at a discount. D)If the coupon rate on a bond equals the yield-to-maturity, then the bond sells at par. 2)When calculating free cash flows, which of the following statements is NOT true regarding the depreciation? Group of answer choices A)As an accrual, depreciation does not factor into free cash flow calculations. B)Depreciation is an accrual, not a cash flow. C)Depreciation create a tax shield. D)Depreciation is first removed and the subsequently added back in when calculating free cash flows.
- h. A bondholder with a short-term bond is exposed to ___________ interest rate risk thanwhen owing a long-term bond.i. When interest rates __________, the market required rates of return ________, and thebond prices will ________.j. If interest rates increase after a bond issue, the yield-to-maturity will ______,Which of the following statements is CORRECT? a. The yield to maturity for a coupon bond that sells at a premium consists entirely of a positive capital gains yield; it has a zero current interest yield. b. The yield to maturity on a coupon bond that sells at its par value consists entirely of a current interest yield; it has a zero expected capital gains yield. c. Rising inflation makes the actual yield to maturity on a bond greater than a quoted yield to maturity that is based on market prices. d. The market value of a bond will always approach its par value as its maturity date approaches. This holds true even if the firm has filed for bankruptcy. e. The expected capital gains yield on a bond will always be zero or positive because no investor would purchase a bond with an expected capital loss.Which one of the following statements about the term structure of interest rates is true?a. The expectations hypothesis indicates a flat yield curve if anticipated future short-term rates exceed current short-term rates.b. The expectations hypothesis contends that the long-term rate is equal to the anticipated short-term rate.c. The liquidity premium theory indicates that, all else being equal, longer maturities will have lower yields.d. The liquidity preference theory contends that lenders prefer to buy securities at the short end of the yield curve.