Answered: All else equal, which bond price is…

All else equal, which bond price is more affected by a change in interest rates, a short-term bond or a longer-term bond? Why?

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 2Q: What is the difference between serial bonds and term bonds?

See similar textbooks

Related questions

Q: What impact do interest rates have on bond prices? What are the basic assumptions that go into…

A: This question explains about the fundamental assumptions that go into establishing the value of a…

Q: Is current yields affected by whether the bond is callable ?

A: A callable bond is a bond where the institution that issues the bond has the option to prematurely…

Q: Why is the required rate of return on a bond different than the copoun rate

A: Bonds are the debt securities which are issued by the corporates or the government to raise the…

Q: What effect does collateral have on a bond's interest rate? What effect does subordination have on a…

A: There are various factors that impact a bond's price. We discount back the future cash flows of a…

Q: How do interest rates affect bond valuations? What are the key assumptions in valuing a bond?

A: Bonds are the form of debt payable by the company. Interest rates on bonds to be paid is coupon…

Q: How do we determine the present value of a bond when market rate differs from its contract rate?

A: The bond is a type of long-term debt that the company issues to fulfill the demand for cash.…

Q: if the market rate of interest is lower than the stated rate, bonds will sell at an amount ?

A: Solution: if the market rate of interest is lower than the stated rate, then bond will sell at an…

Q: What effect do interest rates have on bond prices? What are the fundamental assumptions that go into…

A: SOLUTION- A BOND REPRESENTS A PROMISE BY A BORROWER TO PAY A LENDER THEIR PRINCIPLE AND USUALLY…

Q: What effect do interest rates have on bond prices? What are the essential assumptions behind bond…

A: Introduction: Bonds are a kind of debt that the firm must repay. The term "coupon interest" refers…

Q: What is the link between the level of interest rates and the price of bonds? Why is it necessary for…

A: Introduction: Bonds are a sort of long-term debt that governments and enterprises often issue to…

Q: What impact do interest rates have on bond prices? What are the fundamental assumptions that go into…

A: SOLUTION- A BOND IS LOAN FROM AN INVESTOR TO A BORROWER SUCH AS A COMPANY OR GOVERNMENT .THE…

Q: Why is the yield of bonds with credit risk higher than that of otherwise identical default-free…

A: The question is based on the concept of calculation of yield to maturity in bond investment , the…

Q: What is the link between the level of interest rates and the price of bonds? Why does this…

A: Interest rates and bond prices tend to be inversely related. When rates rise, the bond prices fall.…

Q: How does collateral affect the interest rate on a bond? How does subordination affect the interest…

A: The interest rate on a bond is affected by many factors like collateral, subordination, etc.

Q: Why do bond prices vary inversely with interest rates?

A: Interest rate is the amount charge by the lender for the use of an asset. It is charged on the…

Q: What happens when a bond's market rate is less than the stated rate?

Q: Why does the required rate of return for a particular bond change over time?

A: Bond is fixed rate long term debt instrument used by a business entities to raise funds from general…

Q: What variables influence the bond market's interest rates

A: This question explains about a variety of factors influences interest rates in the bond market.

Q: price of a long-term (longer-maturity) bond more or less sensitive to changes in interest rates than…

A: Long term bonds are more sensitive to change in interest rates than short term bond. If Interest…

Q: What happens when the bond's market rate is greater than the stated rate?

A: Bonds: Bonds are long-term promissory notes that are issued by a company while borrowing money from…

Q: Is the price of a long term bond or the price of a short term security more sensitive to a change in…

A: Bond prices and interest rates are inversely related. A fall in interest rate increases the Bond…

Q: When it comes to bond values, what role do interest rates play? How can you value a bond if you…

A: Introduction: Bonds are a kind of debt owed by the corporation that must be paid back. Coupon…

Q: What is the relationship between interest rate level and bond price? Why must this relationship be…

A: Bonds are a type of long-term debt often offered by government and corporations to raise loan.

Q: What relationship exists between bond prices and interest rates? Explain how you came to make this…

A: Bond price: The present discounted value of a bond's future cash flow is known as the bond price.…

Q: 1. What is the relationship between interest rate level and bond price? Why must this relationship…

A: 1. The interest rate and bond have an inverse relationship .when interest rate rise , the bond price…

Q: Interest rates and bond prices have a direct relationship? true or false

A: Bonds are fixed income debt instruments used by companies to raise funds. The investors in return…

Question

All else equal, which bond price is more affected by a change in interest rates, a short-term bond or a longer-term bond? Why?

Definition Definition Calculates the present value of a bond's expected future periodic coupon payments. Bond valuation determines the theoretical fair value of a particular bond and helps investors estimate what rate of return they could expect. The bond's theoretical fair value is computed by discounting the future cash flows or coupon payments by an applicable discount rate.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Concept and Final Answer

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

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

1. How do we determine the present value of a bond when market rate differs from its contract rate?
1. What is the relationship between interest rate level and bond price? Why must this relationship be true? How has the current rate environment impacted the prices of bonds?
Interest rates and bond prices have a direct relationship? true or false
Why is the required rate of return on a bond different than the copoun rate
Is the price of a long-term (longer-maturity) bond more or less sensitive to changes in interest rates than that of a short-term bond? Why?
What effect does collateral have on a bond's interest rate? What effect does subordination have on a bond's interest rate? What other factors might alter a bond's interest rate?
What effect do interest rates have on bond prices? What are the fundamental assumptions that go into valuing a bond?
What impact do interest rates have on bond prices? What are the fundamental assumptions that go into valuing a bond?
What is the link between the level of interest rates and the price of bonds? Why is it necessary for this connection to be true? What has been the influence of the present interest rate environment on the pricing of bonds?
What relationship exists between bond prices and interest rates? Explain how you came to make this link. What approach may we use to determining the bond's value based on this relationship?
What impact do interest rates have on bond prices? What are the basic assumptions that go into determining a bond's value?
When it comes to bond values, what role do interest rates play? How can you value a bond if you don't know what the fundamental assumptions are.