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- do you predict will happen the market equilibrium price of bonds if the yield to maturity on bonds is expected to decrease, all else remaining constant? a. Your graph should support your statement.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 riskThe 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 change
- 1. What is the Shape of the Yield Curve today? What does that suggest that the Market is pricing into the future of interest rates? 2. Why should we care what the Term Structure of Interest Rates looks like? 3. What does a Bond Rating tell us about the bond's risk? What does it not tell us about the risk of investing in the bond? 4. The Expectations Theory of the Term Structure of Interest Rates implies that the term structure is the result of expected inflation rates in the future. What else might cause the term structure to be what it is, that might not be in the Expectations Theory?Give typing answer with explanation and conclusion TRUE or FALSE?) The reinvestment risk of a bond happens when the market rates change, we will be reinvesting the cash flows at a different rate than what we expected.How do stocks and bonds differ in terms of the future payments that they are expected to make? Which type of investment (stocks or bonds) is considered to be more risky? Given what you know, which investment (stocks or bonds) do you think commonly goes by the nickname “fixed income”?
- If the yield curve in the bond market shows a flat curve, what do you think about the prediction of the liquidity premium in explaining this phenomenon? Then do you prefer the prediction of expectation theory in explaining this phenomenon?Duration is important in understanding a fixed income portfolio because A. it is used in the capital asset pricing model B. it measures the interest rate sensitivity of a bonds value C. It measures the correlation with a bank's stock price D. It causes contagionAssume that inflation is expected to decline in the near future. How could this affect future bond prices? Explain.
- What 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 liquidityAccording to the expectations theory of the term structure, O a when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. O b. when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future. O c. buyers of bonds prefer short-term to long-term bonds. O d. all of the above. O e. only A and B of the above.Assume that inflation is expected to rise soon. How could this affect future bond prices? Would you recommend that financial institutions increase or decrease their concentration in long-term bonds based on this expectation?
