Consider the following two Treasury securities: Bond A is sold at $120 with 5 years of modified duration, and Bond B is sold at $80 with 7 years of modified duration. Which bond will have the greater dollar price difference for a 50-basis-point change in interest rates? [A] Bond A O [B] Bond B O [C] Both bonds will have the same price O [D] Cannot be determined

Consider the following two Treasury securities: Bond A is sold at $120 with 5 years of modified duration, and Bond B is sold at $80 with 7 years of modified duration. Which bond will have the greater dollar price difference for a 50-basis-point change in interest rates? [A] Bond A O [B] Bond B O [C] Both bonds will have the same price O [D] Cannot be determined

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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15. Bonds with a face value of $100,000 that are issued for $99,400 have a stated interest rate a. that is more than the yield rateb. that is less than the yield ratec. that is equal to the yield rated. that may be more or less than the yield rate, but there is notenough information given to determine which
Suppose you are provided with the following table of spot rates of different maturity bonds: Year Spot rate 1 8 2 9 3 7 4 8 5 10 Calculate, respectively, one period forward rates of these bonds for year 2, year 3 and year 4.
Consider a one-year discount bond that has a present value of P1,500. If the rate of discount is 4 percent, the future value of the bond (the amount the bond pays in one year) is? a. P1,560.00 b. P1,540.00 c. P1,440.00 d. 1,442.31
Which type of bonds will have more volatile prices and returns? A. 30-year Treasuries B. 10-year Treasuries
Consider the following two Treasury securities: Bond Price Modified duration (years) A $100 6 B $80 7 For a 25 basis-point change in interest rates, which bond has the greatest percentage change in price? A. Bond A B. Bond B C. Can't be determined
Consider two bonds, S and T. Both bonds presently are selling at their par value of $100. Bond S will mature in 5 years whereas Bond T will mature in 6 years. If interest rates change such that the yield to maturity on both bonds goes from 6% to 8%, then ____________. Group of answer choices A) Both bonds will decrease in value but bond T will decrease more than bond S B) Both bonds will decrease in value but bond S will decrease more than bond T C) Both bonds will increase in value but bond S will increase more than bond T D) Both bonds will increase in value but bond T will increase more than bond S
Which of the following statements is right? Group of answer choices a)Ignoring the liquidity risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. b)Ignoring the default risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. c)The return of the 10-year treasury bond must be less than that of the 10-year corporate bond d)The return of the 10-year treasury bond must be greater than that of the 10-year corporate bond
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
Please answer 6D.
A bond is currently selling for $880. This indicates that this bond is _____, and you would expect that the coupon rate would be _____ than the current market rate. Attractive; greater than Attractive; less than Unattractive; greater than Unattractive; less than
Why does the longer-term (15-year) bond fluctuate more when interest rates change than does the shorter-term bond (1 year)?I. Longer-term bonds have more interest rate risk than shorter-term bonds.II. Shorter-term bonds have more interest rate risk than longer-term bonds.III. Longer-term bonds have more reinvestment rate risk than shorter-term bonds.
Please answer both parts

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