After a bond has been issued, its value will fall if interest rates in the economy rise. What is the reason for that?

Q: Assume that the risk-free rate increases, but the market risk premium remains constant. What impact…

A: Risk free rate is free from the risk. Every rate of return given is depends on the risk free rate.

Q: What happens to junk bonds in a recession

A: A junk bond refers to that that bond issued by companies that do not have an investment grade credit…

Q: Suppose that the Fed wants to lower long-term interest rates and buys all the Treasury securities…

A: If the Fed buys all the Treasury securities that banks hold, it will increase the assets on its…

Q: Explain why the dirty price of a bond might fall sharply before the next coupon is paid?

A: Dirty price of bond include clean price plus accrued interest.

Q: 2. What happens to domestic investment as the real interest rate rises? Explain your answer

A: The Federal Reserve (the Fed) has three goals: maximizing employment, maintaining price stability,…

Q: How do corporate borrowers use interest rate or cross-currency swaps to reduce reduce the costs of…

A: Optimum Capital Structure Occasionally, some financial restructuring is required by a company to…

Q: Is default risk premium likely to be pro-cyclical (i.e., increasing during economic expansion) or…

A: The difference between the company's actual interest rate and risk free rate within the industry is…

Q: Considering the Market for Loanable Funds, explain what the following statement means: “Bonds…

A: The statement refers to the decision-making process for issuing bonds in the context of the market…

Q: firm with heavy long-term debt can benefit during inflationary times, as debt can be repaid with…

A: Long term debt:Long-term debt refers to a financial obligation that is due for more than one year.…

Q: Would there be positive interest rates on bonds in a world with absolutely no risk

A: The fixed income securities which are issued by a firm is known as bond. The fixed income is known…

Q: Reinvest risk is lowest during a period of low interest rates. Also called clean loans. Is this true…

A: Clean Loan: It is a secured loan that one acquires from the bank either for personal use or business…

Q: the treasury bonds in country A consistently yield more returns compared to those in country B, we…

A: The given problem relates to interest rate parity theory.

Q: If interest rates rise, prices of short-term bonds will decline less than long-term bonds. Is this…

A: If interest rates rise, prices of short-term bonds will decline less than long-term bonds because…

Q: If you buy a callable bond and interest rates decline, will the value of your bond rise by asmuch as…

A: Bond valuation refers to the evaluation of bond value at any point of time, which can be used for…

Q: Would the yield spread on a corporate bond over a Treasury bond with the same maturitytend to become…

A: Answer: Yield spread is nothing but the disparity between the returns levels of two financial…

Q: If interest rates increase because of a previously unanticipated inflation rate risk?…

A: Answer -  If interest rates increase because of a previously unanticipated inflation rate risk as a…

Q: An insurance company prefers to invest in high quality bonds with a long maturity date Why may the…

A: Insurance is a financial product that provides protection against loss or damage by transferring the…

Q: What are the two ways sinking funds can be handled? Which alternative will be usedif interest rates…

A: Answer: Sinking fund is a particular fund generated to repay its borrowed funds that collected…

Q: As interest rates rise, the duration of a perpetuity bond decreases.    true or false

A: Rate of interest is defined as an amount of interest, which is due per period with an proportion of…

Q: Long-term bonds fluctuate more than short-term bonds as interest rates rise, making them a riskier…

A: The Bond is  type of investment which consists of earning a fixed coupon rate. Bond holders…

Q: what is the impact on the Loanable Funds Market

A: Loan-able funds are the amount or the funds available in the loan market for the borrowers. These…

Q: Why is it said that zero-coupon bonds lock in the reinvestment rate?

A: The objective of the question is to understand why it is said that zero-coupon bonds lock in the…

Q: Why is there a risk of downgrading on long-term bonds?

A: Long-term bonds are usually for longer terms like 10, 20, 25 or 30 years. due to longer durations,…

Q: Assume that breaking news causes bond portfolio managers (fixed income portfolio managers) to…

A: The question is based on the concept of interest rate and its impact on the bond price. As the…

Q: If interest rates in the economy are rising, the market value of previously issued bonds will a.…

A: If interest rates in the economy are rising, the market value of previously issued bonds will…

Q: if we see an increase in default rates, what may that mean for the junk bond market and for…

A: Junk bonds are those bonds that carry a very high risk of default.  These bonds are issued by…