PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 3, Problem 3PS
- a. If interest rates rise, do bond prices rise or fall?
- b. If the bond yield to maturity is greater than the coupon, is the price of the bond greater or less than 100?
- c. If the price of a bond exceeds 100, is the yield to maturity greater or less than the coupon?
- d. Do high-coupon bonds sell at higher or lower prices than low-coupon bonds?
- e. If interest rates change, do the prices of high-coupon bonds change proportionately more than that of low-coupon bonds?
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Bond traders, currently in possession of the bonds, are hoping for the
Group of answer choices
yield to remain steady.
coupon rate to rise.
yield to rise.
yield to fall.
coupon rate to fall.
Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase , decrease, par, discount, premium, less than, more than, greater , less
If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________.
The value of a bond to increase if there is a/an ________ in interest rates.
A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a
_____________.
As interest rate increases the value of a bond will ______________.
If the bondholder’s required rate of return equals the coupon interest rate, the bond
will sell at _________.
A premium bond sells for ____________ as maturity approaches.
The discount bond sells for ____________ as maturity approaches.
A bondholder with a short-term bond is exposed to ___________ interest rate risk than
when owing a long-term bond.
Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase , decrease, par, discount, premium, less than, more than, greater , less, fall, rise
If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________.
The value of a bond to increase if there is a/an ________ in interest rates.
A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________.
As interest rate increases the value of a bond will ______________.
If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________.
A premium bond sells for ____________ as maturity approaches.
The discount bond sells for ____________ as maturity approaches.
A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a long-term bond.
When interest rates __________, the market required rates of return ________, and the bond prices will…
Chapter 3 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 3 - (PRICE) In February 2009, Treasury 8.5s of 2020...Ch. 3 - (YLD) On the same day, Treasury 3.5s of 2018 were...Ch. 3 - (DURATION) What was the duration of the Treasury...Ch. 3 - (MDURATION) What was the modified duration of the...Ch. 3 - Bond prices and yields A 10-year bond is issued...Ch. 3 - Bond prices and yields The following statements...Ch. 3 - Bond prices and yields Construct some simple...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year German government...Ch. 3 - Bond prices and yields A 10-year U.S. Treasury...
Ch. 3 - Bond returns If a bonds yield to maturity does not...Ch. 3 - Bond returns a. An 8%, five-year bond yields 6%....Ch. 3 - Prob. 10PSCh. 3 - Duration True or false? Explain. a....Ch. 3 - Duration Here are the prices of three bonds with...Ch. 3 - Duration Calculate the durations and volatilities...Ch. 3 - Prob. 14PSCh. 3 - Duration Find the spreadsheet for Table 3.4 in...Ch. 3 - Prob. 16PSCh. 3 - Spot interest rates and yields Which comes first...Ch. 3 - Prob. 18PSCh. 3 - Spot interest rates and yields Look again at Table...Ch. 3 - Prob. 20PSCh. 3 - Spot interest rates and yields Assume annual...Ch. 3 - Spot interest rates and yields A 6% six-year bond...Ch. 3 - Spot interest rates and yields Is the yield on...Ch. 3 - Prob. 24PSCh. 3 - Measuring term structure The following table shows...Ch. 3 - Term-structure theories The one-year spot interest...Ch. 3 - Term-structure theories Look again at the spot...Ch. 3 - Real interest rates The two-year interest rate is...Ch. 3 - Prob. 30PSCh. 3 - Bond ratings A bonds credit rating provides a...Ch. 3 - Prob. 32PSCh. 3 - Price and spot interest rates Find the arbitrage...Ch. 3 - Prob. 34PSCh. 3 - Prices and spot interest rates What spot interest...Ch. 3 - Prices and spot interest rates Look one more time...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- 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.arrow_forwardDescribe and differentiate between a bonds (a) current yield and (b) yield to maturity. Why are these yield measures important to the bond investor? Find the yield to maturity of a 20-year, 9 percent, 1,000 par value bond trading at a price of 850. Whats the current yield on this bond?arrow_forwardWhen would it make sense for a firm to call a bond issue? A) when the market price of the bond exceeds the call price, and market interest rates are greater than the bond's coupon rate B) when the market price of the bond exceeds the call price, and market interest rates are less than the bond's coupon rate C) when the market price of the bond is less than the call price, and market interest rates are greater than the bond's coupon rate D) when the market price of the bond is less than the call price, and market interest rates are less than the bond's coupon ratearrow_forward
- 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?arrow_forwardA bond has a market price that exceeds its face value. Which one of these features currently applies to this bond? Group of answer choices Yield to maturity greater than coupon rate. Currently selling at par. Yield to maturity less than the coupon rate. Yield to maturity equal to the coupon. Discount bond.arrow_forwardWhich one of the following statements is true? Multiple Choice A premium bond has a current yield that exceeds the bond's coupon rate. The current yield on a par value bond will exceed the bond's yield to maturity. A discount bond has a coupon rate that is less than the bond's yield to maturity. The current yield on a premium bond is equal to the bond's coupon rate. The yield to maturity on a premium bond exceeds the bond's coupon rate.arrow_forward
- a) All things being equal If a bond's coupon rate is higher than its yieldto maturity (YTM), is the bond selling at a discount, premium or par?b) All things being equal If a bond's coupon rate is lower than its yield tomaturity (YTM), is the bond selling at a discount, premium or par?c) All things being equal If a bond's coupon rate is equal to its yield tomaturity (YTM), then is the bond selling at a discount, premium or par?d) All else being equal, the longer the term to maturity, the greater orthe lower the duration?f) All else being equal, the higher the coupon rate on the bond, theshorter or the longer the duration of the bond?arrow_forwardWhich one of the following statements is true regarding bond valuation?a. When yield to maturity is higher than coupon rate, the bond is called a premium bondb. When yield to maturity is higher than coupon rate, the bond is traded at parc. When yield to maturity is less than coupon rate, the bond is called a discount bondd. When yield to maturity is higher than coupon rate, the bond is called a discount bonde. When yield to maturity is equal to coupon rate, the bond is called a premium bondarrow_forwardBond Relationships. Select one or more of the following phrases to complete the following sentences. increase, decrease, par, discount, premium, less than, more than, greater, less, fall, rise.a. If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a ___________. b. The value of a bond to increase if there is a/an ________ in interest rates. c. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a _____________. d. As interest rate increases the value of a bond will ______________. e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________. f. A premium bond sells for ____________ as maturity approaches. g. The discount bond sells for ____________ as maturity approaches. h. A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a long-term bond. i. When interest rates __________, the market required rates of return ________, and…arrow_forward
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