The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. BOND VALUE ($1 2000 1750 1500 1250 1000 1-Year Bond 750 500 10-Year Bond 250 12 16 20 INTEREST RATE (%)

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
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Based on the graph, which of the following statements is true?
  • Neither bond has any interest rate risk.
  • The 1-year bond has more interest rate risk.
  • Both bonds have equal interest rate risk.
  • The 10-year bond has more interest rate risk.
 


Which type of bonds offer a higher yield, noncallable bonds or callable bonds?
 


Answer the following question based on your understanding of interest rate risk and reinvestment risk. True or False: Assuming all else is equal, short-term securities are exposed to higher reinvestment risk than long-term securities.
The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates.
BOND VALUE ($1
2000
1750
1500
1250
1000
1-Year Bond
750
500
10-Year Bond
250
12
16
20
INTEREST RATE (%)
Transcribed Image Text:The curves on the following graph show the prices of two 10% annual coupon bonds at various interest rates. BOND VALUE ($1 2000 1750 1500 1250 1000 1-Year Bond 750 500 10-Year Bond 250 12 16 20 INTEREST RATE (%)
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