The higher the risk of a security, the higher its expected return will be. A bond's risk level is reflected in its yield, but understanding the different risksinvolved when investing in bonds is important.The following graph shows the relationship between interest rates and maturity for three security classes: US Treasury securities (USTS), AA-ratedcorporate bonds, and BBB-rated corporate bonds. Use the selection dropdown lists to correctly associate each curve with its corresponding securityclass:YIELD (%)15A12B51015202530YEARS TO MATURITY3.

1. The green curve (Curve A) in graph represents BBB rated corporate bonds. These are investment…

Answered: The higher the risk of a security, the…

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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Which of the following statements is true? Select one:a)Short-term bonds have greater interest rate risk than do long-term bonds.b)Interest rate risk is highest during periods of high interest rates.c)Long-term bonds have greater interest rate risk than do short-term bonds.d)All bonds have equal interest rate risk.
1. Types of bonds Fixed-income securities consist of debt instruments and preferred stock. Bonds are debt securities in which a borrower promises to pay a specified interest rate and principal at a future date. Which of the following statements about Treasury bonds is the most accurate? O Treasury bonds have a very small amount of default risk, so they are not completely riskless. O Treasury bonds are completely riskless. O Treasury bonds are not completely riskless, since their prices will decline when interest rates rise. Based on the information given in the following statement, answer the questions that follow: In July 2009, Walmart sold 100 billion yen of five-year samurai bonds. Lead managers in the deal were Mizuho Securities, BNP Paribas, and Mitsubishi UFJ Securities. Who is the issuer of the bonds? O Mitsubishi UFJ Securities O BNP Paribas O Walmart What type of bonds are these? O Corporate bonds O Municipal bonds O Government bonds O O
The time value of money is used in calculating bond prices because: Group of answer choices A - The company might choose to repay the bonds prior to their maturity date B - Bond investors receive future payments and purchase bonds with current dollars C - The amount to be repaid at maturity will change as market rates change D - Cash interest payments to bondholders will change as market rates change
With regard to interest rate sensitivity measures and bonds: Group of answer choices C. Convexity attempts to capture the sensitivity of a bond’s duration to changes in interest rates. D. Both B & C B. Duration is related to yield approximation and convexity is related to price. A. Convexity is related to yield approximation and duration is related to price
Which of the following fixed income securities has the highest level of risk? Which one has the highest level of liquidity? a. treasury bonds b. agency bonds c. corporate bonds d. municipal bonds
Duration Multiple Choice is a direct comparison between bond issues with different levels of risk. assesses the time element of bonds in terms of both coupon and term to maturity and is a direct comparison between bond issues with different levels of risk. assesses the time element of bonds in terms of both coupon and term to maturity and allows structuring a portfolio to avoid interest-rate risk. assesses the time element of bonds in terms of both coupon and term to maturity. allows structuring a portfolio to avoid interest-rate risk.
A bond’s expected return is sometimes estimated by its yield to maturity (YTM) and sometimes by its yield to call (YTC). The YTC is a better estimate when the bond sells at... a. a discount. b. a premium. c. par value.
Martin Bowman is preparing a report distinguishing traditional debt securities from structured note securities. Discuss how the following structured note securities differ from a traditional debt security with respect to coupon and principal payments:a. Equity index-linked notes.b. Commodity-linked bear bond.
To understand how bonds work and how they are priced, we have to have an understanding of what determines a bond’s price. One of the most important factors to consider when pricing bonds is the prevailing market rate of interest for bonds of similar risk in terms of duration and quality. In your response to this question, you should highlight the relationship between bond prices and interest rates and indicate what risks are considered when we price bonds. Include at least two citations that support your response.
Current yield is used to determine Seleccione una: a. A portion of the yield on an investment b. The payout of a bond investment c. The amount of money a bond investor will earn d. The coupon rate of a bond investment
Which factors could explain the higher yield to maturity on the Hunter bond? Check all that apply: Bond rating Original time to maturity Coupon rate Time to maturity Issue size

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