convertible, and they are equally liquid. Further assume that the Treasury yield curve is based only on the pure expectations theory. Under these conditions, which of the following statements is CORRECT? O a. If Long's and Short's bonds have the same default risk, their yields must under all conditions be equal. O b. If the Treasury yield curve is upward sloping and Short has less default risk than Long, then Short's bonds must under all conditions have a lower yield than Long's bonds. O c. If the yield curve for Treasury securities is flat, Short's bond must under all conditions have the same yield as Long's bonds. O d. If the yield curve for Treasury securities is upward sloping, Long's bonds must under all conditions have a higher yield than Short's bonds. Oe. If the Treasury yield curve is downward sloping, Long's bonds must under all conditions have the lower yield.

convertible, and they are equally liquid. Further assume that the Treasury yield curve is based only on the pure expectations theory. Under these conditions, which of the following statements is CORRECT? O a. If Long's and Short's bonds have the same default risk, their yields must under all conditions be equal. O b. If the Treasury yield curve is upward sloping and Short has less default risk than Long, then Short's bonds must under all conditions have a lower yield than Long's bonds. O c. If the yield curve for Treasury securities is flat, Short's bond must under all conditions have the same yield as Long's bonds. O d. If the yield curve for Treasury securities is upward sloping, Long's bonds must under all conditions have a higher yield than Short's bonds. Oe. If the Treasury yield curve is downward sloping, Long's bonds must under all conditions have the lower yield.

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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Similar questions

Which of the following statement is wrong? Group of answer choices a)the coupon rate of a newly issued bond is generally set equal to the required rate on bonds of equal risk. b)Since short-term interest is more volatile than the long-term interest rate, the price risk of short-term bond is more than that of the long-term bond c)The required rate of return for AAA bond is lower than that of an AA bond d)Sinking funds are provisions included in bond indentures that require companies to retire bonds on a scheduled basis prior to their final maturity.
Explain "bond price elasticity." Do zero-coupon or high-coupon bonds with the same yield to maturity have a stronger price sensitivity? Why? What does this mean for the market value volatility of zero-coupon Treasury bonds in mutual funds?
A bond will sell at a premium when its coupon interest rate: is lower than the market interest rate on similar bonds. O exceeds the market interest rate on similar bonds. O varies more than the market interest rate on similar bonds. O equals the market interest rate on similar bonds.
What is a bond’s market value when the required rate of return (ie market rate) is less than the coupon rate? The bond’s market value is less than the par value. The bond’s market value is the same as the par value. The bond’s market value is greater than the par value. None of the above.
Use the following information to answer this question. In your answers, ignore the negative sign, if any. Yield on Bond A Yield on Bond B Yield on Bond C 5.50% 6.50% 3.50% a) What is the yield spread between bonds A and B (in basis points)? b) What is the relative yield spread between bonds B and C? Bond C is your basis. c) What is the yield ratio between A and C? Bond C is your basis.
If a callable bond is trading at a premium, what yield measure is most appropriate? a) dividend yield b) yield to maturity c) yield to infinity d) yield to call e) none of the above
As the price of a bond □ a. rises; rises Ob. falls; falls c. rises; falls O d. falls; rises and the expected return , bonds become more attractive to investors and the quantity demanded rises.
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
Give typing answer with explanation and conclusion Question 16: Which of the following statements about convexity are true? I. Convexity accounts for the curvilinear function of bond rates II. A bond with a very low coupon and a long maturity will have low convexity III. A bond investor would seek to avoid bonds with high convexity. IV. Convexity is defined as the rate of change of the slope of the price/yield curve V. There is an inverse relationship between maturity and convexity a. I. b. II. III. IV. c. I. IV. d. II. IV. V. e. I. II. IV. V.
Which of the following statements is TRUE regarding bonds? O A. At maturity, lenders repay a bond's par value to borrowers. O B. Ceteris paribus, bonds with higher YTMS would have higher prices. c. Borrowers purchase bonds. O D. If you anticipate a decline in market interest rates, you should purchase long-term zero-coupon bonds.
In a few sentences, answer the following question as completely as you can. In discussing asset pricing, your textbook suggests that an investor will be indifferent between two bonds with equal yield to maturity, as long as they are of equivalent risk. Can you think of any real-world factors that might make an investor prefer one of these bonds over the other?
Which one of the following expressions about risk and returns is wrong? A. In general, one reason why a stock is riskier than a bond is that because cash flows from a bond are known and promised, whereas cash flows from a stock are neither known nor promised. B. According to CAPM model, a well-diversified portfolio will have a beta which equals to 0. C. Risk premium is the extra return provided on risky assets to compensate for risk. The difference between risky return and the risk-free return. D. Unexpected return happened because new information came to light which caused our expectations about prices and returns to change.

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