EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 16, Problem 7PS
Summary Introduction
To determine:
Which bond will provide greatest
Introduction:
Bond refers to the debt instrument pertaining to which loan is provided by the investor to the governmental or corporate entity for a definite time period at a fixed or variable rate of interest.
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Students have asked these similar questions
You predict that interest rates are about to fall. Which bond will give you the highest capital gain?a. Low coupon, long maturity.b. High coupon, short maturity.c. High coupon, long maturity.d. Zero coupon, long maturity.
If you expect the interest rate to fall, which bond will give you the highest price appreciation?
Group of answer choices
High coupon, short maturity
Zero coupon, short maturity
Zero coupon, long maturity
High coupon, long maturity
It is the interest rate that the buyer will actually earn if the bond is held to maturity and there is no default.
A. yield to maturity
B. no choice given
c. current yield
d. coupon discount rate
e. coupon payment rate
Chapter 16 Solutions
EBK INVESTMENTS
Ch. 16 - Prob. 1PSCh. 16 - Prob. 2PSCh. 16 - Prob. 3PSCh. 16 - Prob. 4PSCh. 16 - Prob. 5PSCh. 16 - Prob. 6PSCh. 16 - Prob. 7PSCh. 16 - Prob. 8PSCh. 16 - Prob. 9PSCh. 16 - Prob. 10PS
Ch. 16 - Prob. 11PSCh. 16 - Prob. 12PSCh. 16 - Prob. 13PSCh. 16 - Prob. 14PSCh. 16 - Prob. 15PSCh. 16 - Prob. 16PSCh. 16 - Prob. 17PSCh. 16 - Prob. 18PSCh. 16 - Prob. 19PSCh. 16 - Prob. 20PSCh. 16 - Prob. 21PSCh. 16 - Prob. 22PSCh. 16 - Prob. 23PSCh. 16 - Prob. 24PSCh. 16 - Prob. 25PSCh. 16 - Prob. 1CPCh. 16 - Prob. 2CPCh. 16 - Prob. 3CPCh. 16 - Prob. 4CPCh. 16 - Prob. 5CPCh. 16 - Prob. 6CPCh. 16 - Prob. 7CPCh. 16 - Prob. 8CPCh. 16 - Prob. 9CPCh. 16 - Prob. 10CPCh. 16 - Prob. 11CPCh. 16 - Prob. 12CPCh. 16 - Prob. 13CP
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- If interest rates rose, would you be happier if you have a low-coupon bond or a high-coupon bond?arrow_forwardA "discount bond" has a price less than face value because ________________. A) the issuing firm has a high probability of default B) the issuing firm has a low probability of default C) the bond coupon rate is greater than the yield to maturity D) the bond coupon rate is less than the yield to maturityarrow_forwardFor the holder of a fixed-rate coupon bond, reinvestment risk is a bigger problem during a period of falling interest rates than during a period of rising interest rates. Why, Explain.arrow_forward
- Price risk is the risk that Select one: a. the bond principal will not be paid in full or on time. b. market prices increase due to market interest rate changes making bonds more expensive to purchase. c. the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates. d. the yield-to-maturity will be less than the inflation risk causing the real rate of return to be negative. e. coupon payments will be reinvested at a rate that is less than the bond's yield-to-maturityarrow_forwardThe coupon rate is greater than the yield to maturity when a bond sells at a premium. Select one: True Falsearrow_forwardSince bonds always come with a coupon rate, why is it still important to check the yield to maturity when deciding to invest in a bond?arrow_forward
- When a firm gets riskier what will happen to its bonds Multiple Choice the market interest rate of the bonds will go up and the price of the bonds will go up the market interest rate of the bonds will go down and the price of the bonds will go up the market interest rate of the bonds will go down and the price of the bonds will go down the market interest rate of the bonds will go up and the price of the bonds will go down there is no definite answerarrow_forwardRate the following statement as True of False: "Although, Convexity is listed as a 'risk' to bond investors, it is actually a benefit to investors who own bonds. This is because when a bond has high convexity an investor will make more money for a given drop in interest rates, than he or she will lose given the same magnitude increase in interest rates. Thus, more convexity means more potential upside relative to downside for a bond investor, given that yields are equally likely to move up or down by the same amount." True of False?arrow_forwardExplain 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.arrow_forward
- Suppose you are managing a bond portfolio for liquidity that is heavily invested in Treasury bonds. Your long-term interest rate forecast is that interest rates will fall. How would this forecast affect the liquidity embedded in your bond portfolio?arrow_forwardSuppose a mutual fund that invests in bonds purchased a bond when its yield to maturity is higher than the coupon rate. The investor should expect the bond’s price to: exceed the face value at maturity. decline over time, reaching par value at maturity. increase over time, reaching par value at maturity. be less than the face value at maturity.arrow_forwardHolding all else unchanged, if an investor expects interest rates to _______________ she/he will choose a bond with ___________ Decrease; long duration Increase; long duration Decrease; high liquidity risk Increase; high liquidity riskarrow_forward
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