Required: Long-term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates to fall. The rest of the market thinks that they will remain unchanged over the coming year. In each question, choose the bond that will provide the higher capital gain if you are correct. 1. O An Aaa-rated bond with coupon rate 6% and time to maturity 20 years. 2. OA Baa-rated bond with coupon rate 6% and time to maturity 20 years. An A-rated bond with coupon rate 6% and maturity 20 years, callable at 105. O An A-rated bond with coupon rate 4% and maturity 20 years, callable at 105. 3. OA 7% coupon T-bond with maturity 20 years and YTM = 6%. OA 4% coupon T-bond with maturity 20 years and YTM = 6%.
Required: Long-term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates to fall. The rest of the market thinks that they will remain unchanged over the coming year. In each question, choose the bond that will provide the higher capital gain if you are correct. 1. O An Aaa-rated bond with coupon rate 6% and time to maturity 20 years. 2. OA Baa-rated bond with coupon rate 6% and time to maturity 20 years. An A-rated bond with coupon rate 6% and maturity 20 years, callable at 105. O An A-rated bond with coupon rate 4% and maturity 20 years, callable at 105. 3. OA 7% coupon T-bond with maturity 20 years and YTM = 6%. OA 4% coupon T-bond with maturity 20 years and YTM = 6%.
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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Long-term Treasury bonds currently are selling at yields to maturity of nearly 6%. You expect interest rates to fall. The rest of the
market thinks that they will remain unchanged over the coming year. In each question, choose the bond that will provide the higher
capital gain if you are correct.
1.
O An Aaa-rated bond with coupon rate 6% and time to maturity 20 years.
2.
OA Baa-rated bond with coupon rate 6% and time to maturity 20 years.
An A-rated bond with coupon rate 6% and maturity 20 years, callable at 105.
O An A-rated bond with coupon rate 4% and maturity 20 years, callable at 105.
3.
OA 7% coupon T-bond with maturity 20 years and YTM = 6%.
OA 4% coupon T-bond with maturity 20 years and YTM = 6%.
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