Answered: A higher yield to maturity, means a…

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A higher yield to maturity, means a lower bond duration. Question 14 options: True False

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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onds are issued at discount Select one: a. When market rate of interest is equal to coupon rate b. None of the options is right c. When market rate of interest is less than coupon rate d. When market rate of interest is greater than coupon rate
1. Use the following statements to answer questions 1-2. Statement 1: Modified duration is a better measure for a bond’s sensitivity for shaping risk than key rate duration. Statement 2: Effective duration is a better measure for a bond with an embedded option than modified duration. Statement 3: Spread duration is a measure of the risk-free rate change. Statement 4: Modified duration is a measure of curve duration. A. Statement 3 B. Statement 4 C. Both statement 3 and 4 D. Neither statement
Define each of the following terms:a. Derivative; natural hedgeb. Option; call option; put optionc. Long-term Equity Anticipation Security (LEAPS)d. Exercise value; strike (exercise) pricee. Binomial Option Pricing Model; Black–Scholes Option Pricing Model; riskless hedgef. Futures contract; forward contractg. Commodity futures; financial futuresh. Swap; structured notei. Inverse floaterj. Risk managementk. Speculationl. Hedging; long hedges; short hedges; perfect hedge
5. A forward rate agreement is equivalent to which of the following interest rate options: A. long a call and a put B. short a call and long a putC. long a cull and short a put Explain why?
QUESTION 2 Which of the following statements about bond is incorrect? A. • The longer the maturity, the more sensitive the bond's price to changes in yield to maturity. B. Yield to maturity assumes that all bond coupons can be reinvested at the same level of yield to maturity. The relationship between bond prices and yields to maturity is convex. D. The relationship between bond prices and yields to maturity is inverse. E. For a premium bond, the coupon rate is smaller than current yield.
QUESTION 4 Value of a putable bond is A. O value of callable bond -option cost B. O value of nonputable bond + value of put option C. O value of nonputable bond - value of put option D. O value of putable bond + strike price
Question 2 Options In A firm can hedge the risk of upward movement in raw material prices by: A. Buying a call option. B. Selling a put option. C. Buying a put option. D. Selling a futures contract
For a premium bond, the: Multiple Choice O current yield is equal to the coupon rate but less than the yield to maturity. O yield to maturity exceeds both the coupon rate and the current yield. O coupon rate is equal to the yield to maturity but less than the current yield. current yield is less than either the coupon rate or the yield to maturity. coupon rate exceeds both the yield to maturity and the current yield.
Give typing answer with explanation conclusion
QUESTION 5 According to the liquidity preference hypothesis, which of the following statements is correct? a. If term structure of interest rate is flat, then future short-term rates are expected to keep unchanged. b. The return on investing a two-year bond equals the return of two one-year rollover investments. C. If term structure of interest rate is upward, then future short-term rates are expected to increase. O d. If term structure of interest rate is downward, then future short-term rates are expected to decrease. e. The return on investing a two-year bond is less than the return of two one-year rollover investments.
How does the price-yield relationship for a callable bond compare to the same relationship for an option-free bond? The price-yield relationship is best described as exhibiting: negative convexity at low yields for the callable bond and positive convexity for the option-free bond the same convexity for both bond types negative convexity for the callable bond and positive convexity for an option- free bond
None

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