A callable bond has a yield to call (YTC) of 5%, and a non-callable bond has a yield to maturity (YTM) of 4%. Which bond is likely to have a higher duration? a C d The callable bond. The non-callable bond. Both bonds will have the same duration. Cannot be determined without more information.
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- A bond’s expected return is sometimes estimated by its YTM and sometimes by its YTC. Underwhat conditions would the YTM provide a better estimate, and when would the YTC be better?Which of the following bonds has the least reinvestment risk?A. A bond that has a higher coupon rate than the yield-to-maturityB. A bond that has a lower coupon rate than the yield-to-maturityC. A zero-coupon bondA AAA-rated bond has a lower yield than a A-rated bond. True False
- Consider a 1-factor parallel yield shift model with a flat structure of interest rates and consider two bonds with the same maturity time T but with different coupon rates. Which bond has a higher duration? A) The bond with a lower coupon rate B) The bond with a higher coupon rate C) The Durations of these two bonds are the sameOther things held constant, if a bond indenture contains a call provision, the yield to maturity thatwould exist without such a call provision will generally be ____ the YTM with it.a.Higher thanb.Lower thanc.The same asd.Either higher or lower, depending on the level of call premium, thane.Unrelated to 5. Of the following provisions that might be found in a bond indenture, which would tend to reduce thecoupon interest rate on the bond in question?a.A subordination clause in a debenture.b.A call provision.c.A convertible feature.d.Having relatively few restrictive covenants.e.All of the above.Which type of bonds offer a higher yield? Callable bonds Noncallable bonds Answer the following question based on your understanding of interest rate risk and reinvestment risk. True or False: Assuming all else is equal, the shorter a bond's maturity, the more its price will change in response to a given change in interest rates. False True
- Which of the following is TRUE about a bond's face (par) value? Select one: a. the face value of a bond is the same as the bond's price b. the par value of a bond is the interest payment c. the face value of a bond changes when yields change d. the value of a bond will always be equal to par at maturity.Explain within a small paragraph the concept of duration. Provide an example where duration is equal to the time to maturity. Furthermore, explain why for bond instruments, Macaulay duration is close to but not equal in general, to the time to maturity.A bond that has an embedded put is more valuable at ( higher/lower)Over this region on the prince/yield curve you can see that a puttable bond has (more/less)value than an option-free bond. These bonds are valuable to the bond (holder/issuer)as they have the right to exercise the embedded put option.
- Explain the advantages and disadvantages of having protective covenants placed into the bond contract/indenture (and indicate the yield required on the bond if such protective covenants into the indenture caused a change in the required yield by 45 basis points, where one basis point is 0.01%, so the change would be 0.01%x45=0.45%).When is curve duration used? O In all of the cases given. O When the yield to maturity is not a meaningful measure. O In none of the cases given. To estimate duration for bonds with embedded put options. To estimate duration for callable bonds.Discuss how the price of a puttable bond will differ from the price of a similar, plain vanilla bond and the main determinants of this price difference.