Q1-6. Which of the following statements are TRUE about zero-coupon bonds? If the market interest rate is the same as YTM, a zero-coupon bond will be traded at Par. II. Given the same principal, one with longer maturity should have higher interest rate risk. III. Given the same maturity, one with lower principal will have higher reinvestment risk. IV. Given the same market price, smaller capital is needed to (delta) hedge a bond portfolio with a zero coupon bond than with a coupon bond. A. I and II only D. I and IV only B. I and III only E. Il and IV only C. II and II only
Q1-6. Which of the following statements are TRUE about zero-coupon bonds? If the market interest rate is the same as YTM, a zero-coupon bond will be traded at Par. II. Given the same principal, one with longer maturity should have higher interest rate risk. III. Given the same maturity, one with lower principal will have higher reinvestment risk. IV. Given the same market price, smaller capital is needed to (delta) hedge a bond portfolio with a zero coupon bond than with a coupon bond. A. I and II only D. I and IV only B. I and III only E. Il and IV only C. II and II only
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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Q1-6. Which of the following statements are TRUE about zero-coupon bonds? I. If the market interest rate is the same as YTM, a zero-coupon bond will be traded at Par. II. Given the same principal, one with longer maturity should have higher interest rate risk. III. Given the same maturity, one with lower principal will have higher reinvestment risk. IV. Given the same market price, smaller capital is needed to (delta) hedge a bond portfolio with a zero coupon bond than with a coupon bond.
Transcribed Image Text:Q1-6. Which of the following statements are TRUE about zero-coupon bonds?
If the market interest rate is the same as YTM, a zero-coupon bond will be traded at Par.
II. Given the same principal, one with longer maturity should have higher interest rate risk.
III. Given the same maturity, one with lower principal will have higher reinvestment risk.
IV. Given the same market price, smaller capital is needed to (delta) hedge a bond portfolio
with a zero coupon bond than with a coupon bond.
A. I and II only
D. I and IV only
B. I and III only
E. Il and IV only
C. II and II only
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