If the risk associated with bonds issued by a particular issuer decreases, how will this affect the price and yield of these bonds?Multiple ChoiceThe price of the bond will increase but the yield will decreaseThe price of the bond and yield will both increaseThe price of the bond and yield will both decreaseThe price of the bond will decrease but the yield will increase

The relationship between price and yield are inverse. If yield increased, the price of the bond will…

Answered: If the risk associated with bonds…

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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2
a rise in risk premium will cause bond market prices to rise? true or false?
if we see an increase in default rates, what may that mean for the junk bond market and for companies that want/need to sell more junk bonds?
It is the interest rate that the buyer will actually earn if the bond is held to maturity and there is no default. A. yield to maturity B. no choice given c. current yield d. coupon discount rate e. coupon payment rate
Without the threat of inflation, an increase in the money supply could reduce interest rates and bond prices would increase. Thus, bond portfolio managers would purchase more bonds now, causing immediate upward pressure on bond prices. True or False?
What is the impact of bond price fluctuations on the yield or APR of a bond? When bond prices go down, the yield or APR goes up. When bond prices 90 up, the yield or APR also goes up Bond price fluctuations have noimpact on the yield or APR
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?
Price risk is the risk that Select one: a. the bond principal will not be paid in full or on time. b. market prices increase due to market interest rate changes making bonds more expensive to purchase. c. the bonds in a dedicated portfolio will decrease in value in response to an increase in interest rates. d. the yield-to-maturity will be less than the inflation risk causing the real rate of return to be negative. e. coupon payments will be reinvested at a rate that is less than the bond's yield-to-maturity
We know that a vanilla bond with a coupon rate below the market rate of interest will sell for a discount and that a vanilla bond with a coupon rate above the market rate of interest will sell for a premium. What kind of bond or loan will sell at its par valueregardless of what happens to the market rate of interest?
Assume that the risk-free rate increases, but the market risk premium remains constant. What impact would this have on the cost of debt? What impact would it have on the cost of equity? Start a New Thread
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.

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