Suppose that interest rates decrease. Assuming all other parameters that impact the price of bonds and stocks remain constant, what would you expect to happen to bond and stock prices? a. Bond prices would increase and stock prices would decrease. b. Bond prices would decrease and stock prices would decrease. c. Bond prices would decrease and stock prices would increase. d. Bond prices would increase and stock prices would increase. e. Stock prices would increase. More information would be needed to determine the impact on bond prices.
Suppose that interest rates decrease. Assuming all other parameters that impact the price of bonds and stocks remain constant, what would you expect to happen to bond and stock prices? a. Bond prices would increase and stock prices would decrease. b. Bond prices would decrease and stock prices would decrease. c. Bond prices would decrease and stock prices would increase. d. Bond prices would increase and stock prices would increase. e. Stock prices would increase. More information would be needed to determine the impact on bond prices.
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
Related questions
Question
10. Suppose that interest rates decrease. Assuming all other parameters that impact the price of bonds and stocks
remain constant, what would you expect to happen to bond and stock prices?
a.Bond prices would increase and stock prices would decrease.
b. Bond prices would decrease and stock prices would decrease.
c. Bond prices would decrease and stock prices would increase.
d. Bond prices would increase and stock prices would increase.
e. Stock prices would increase. More information would be needed to determine the impact on bond prices.
remain constant, what would you expect to happen to bond and stock prices?
a.
b. Bond prices would decrease and stock prices would decrease.
c. Bond prices would decrease and stock prices would increase.
d. Bond prices would increase and stock prices would increase.
e. Stock prices would increase. More information would be needed to determine the impact on bond prices.
11. Which of the following bonds would have the smallest change in price (in percentage terms) for a given
change in interest rates (i.e., yield to maturity) – that is, if the yield to maturity on a bond increases from 8%
to 10%, all else constant, which of the following bond prices will change the least (in percentage terms)?
a. A $1000 par value bond with a 10% coupon rate (annual payments) that matures in 2 years.
b. A $1000 par value bond with a 10% coupon rate (semi-annual payments) that matures in 25 years.
c. A $1000 par value bond with a 2% coupon rate (annual payments) that matures in 4 years.
d. A $1000 par value bond with a 2% coupon rate (semi-annual payments) that matures in 30 years.
e. The bond that changes the most (in price percentage terms) cannot be determined from the information
given.
12. Five years ago, ABC Inc. issued 25-year fixed coupon bonds at par. Since that time the bond’s yield-to-
maturity (YTM) has decreased by 1.5%. Based on this information, which of the following is true regarding
the current market price of the bond?
a. The bond is selling at discount.
b. The bond is selling at premium.
c. The bond is selling at book value.
d. The bond is selling at par.
e. Insufficient information.
change in interest rates (i.e., yield to maturity) – that is, if the yield to maturity on a bond increases from 8%
to 10%, all else constant, which of the following bond prices will change the least (in percentage terms)?
a. A $1000 par value bond with a 10% coupon rate (annual payments) that matures in 2 years.
b. A $1000 par value bond with a 10% coupon rate (semi-annual payments) that matures in 25 years.
c. A $1000 par value bond with a 2% coupon rate (annual payments) that matures in 4 years.
d. A $1000 par value bond with a 2% coupon rate (semi-annual payments) that matures in 30 years.
e. The bond that changes the most (in price percentage terms) cannot be determined from the information
given.
12. Five years ago, ABC Inc. issued 25-year fixed coupon bonds at par. Since that time the bond’s yield-to-
maturity (YTM) has decreased by 1.5%. Based on this information, which of the following is true regarding
the current market price of the bond?
a. The bond is selling at discount.
b. The bond is selling at premium.
c. The bond is selling at book value.
d. The bond is selling at par.
e. Insufficient information.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education