PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 23, Problem 5PS
Default option* Other things equal, would you expect the difference between the price of a Treasury bond and a corporate bond to increase or decrease with
- a. The company’s business risk?
- b. The degree of leverage?
- c. The time to maturity?
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Bonds. What is the relationship between the price of a bond and its YTM? All else being the same, which has more interest rate risk, a long-term bond or a short-term bond? What about a low coupon bond compared to a high coupon bond? What about a long-term, high coupon compared to a short-term, low coupon bond? Why?
What is a maturity risk premium?
Group of answer choices
-A premium that reflects interest rate risk.
-The risk of capital losses to which investors are exposed because of changing interest rates.
-The difference between the interest rate on a U.S. Treasury bond and a corporate bond of equal maturity.
-The rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expected.
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 ______,
Chapter 23 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 23 - Expected yield You own a 5% bond maturing in two...Ch. 23 - Bond ratings In February 2018, Aaa bonds yielded...Ch. 23 - Bond ratings It is 2030 and the yields on...Ch. 23 - Prob. 4PSCh. 23 - Default option Other things equal, would you...Ch. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Default option Digital Organics has 10 million...Ch. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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- 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 changearrow_forwardH4. 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 pricearrow_forwardWhat happens to Bond prices, quantities, and interest rates if (Make sure to include the supply and demand graph for bonds for each question : a) Decrease in wealth b) Increase in risk c) Decrease in liquidityarrow_forward
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