Give a definition for the term "bond price elasticity." Would the price elasticity of bonds imply that zero-coupon or high-coupon bonds with the same yield to maturity have a greater price sensitivity? Why? What effect does this have on the market value volatility of zero-coupon Treasury bonds held in mutual funds vs high-coupon Treasury bonds?

Give a definition for the term "bond price elasticity." Would the price elasticity of bonds imply that zero-coupon or high-coupon bonds with the same yield to maturity have a greater price sensitivity? Why? What effect does this have on the market value volatility of zero-coupon Treasury bonds held in mutual funds vs high-coupon Treasury bonds?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15QTD

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Similar questions

Explain the concept of bond price elasticity. Would bond price elasticity suggest a higher price sensitivity for zero-coupon bonds or high-coupon bonds that are offering the same yield to maturity? Why? What does this suggest about the market value volatility of mutual funds containing zero-coupon Treasury bonds versus high-coupon Treasury bonds?
What does "bond price elasticity" mean? How does the price elasticity of bonds compare to the yield to maturity of zero-coupon bonds? Why? Which means that zero-coupon Treasury bonds are more volatile than high-coupon Treasury bonds in terms of market value.
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?
Explain how does a bond par value differs from its market value? Are variable rate bonds attractive to investors who expect the interest rates to decrease? Explain. Would a firm that needs to borrow funds consider issuing variable rate bonds if it expects interest rates to decrease in the future? Explain.
3. Bond prices and yields (S3.1) Construct some simple examples to illustrate your answers to the following:
If the yield curve in the bond market shows a flat curve, what do you think about the prediction of the liquidity premium in explaining this phenomenon? Then do you prefer the prediction of expectation theory in explaining this phenomenon?
Bonds. What is the relationship between the price of a bond and its YTM? All else being the same, which has more interest rate risk, a long-term bond or a short-term bond? What about a low coupon bond compared to a high coupon bond? What about a long-term, high coupon compared to a short-term, low coupon bond? Why?
Describe the differences between the yield to maturity (YTM) and the yield to call (YTC) on a bond. Why would the return to the investor be different if a bond is called? Justify your answer
Why does the market value differ from its par value when the coupon interest rate does not equal the market yield to maturity on a comparable-risk bond?
Which of the following bonds has the least reinvestment risk?A. A bond that has a higher coupon rate than the yield-to-maturityB. A bond that has a lower coupon rate than the yield-to-maturityC. A zero-coupon bond
Briefly describe why investors should buy high-quality (non-speculative) bonds based on yield-to-maturity rather than price. Shouldn't wise investors choose the lowest priced bonds they can find with suitable risk? Your Answer:
Why is the yield of bonds with credit risk higher than that of otherwise identical default-free bonds?