Which of the following statements about bond is incorrect? A. The longer the maturity, the more sensitive the bond's price to changes in yield to maturity. B. Yield to maturity assumes that all bond coupons can be reinvested at the same level of yield to maturity. C. The relationship between bond prices and yields to maturity is convex. D. The relationship between bond prices and yields to maturity is inverse. E. For a premium bond, the coupon rate is smaller than current yield.
Which of the following statements about bond is incorrect? A. The longer the maturity, the more sensitive the bond's price to changes in yield to maturity. B. Yield to maturity assumes that all bond coupons can be reinvested at the same level of yield to maturity. C. The relationship between bond prices and yields to maturity is convex. D. The relationship between bond prices and yields to maturity is inverse. E. For a premium bond, the coupon rate is smaller than current yield.
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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Transcribed Image Text:QUESTION 2
Which of the following statements about bond is incorrect?
A.
• The longer the maturity, the more sensitive the bond's price to changes in yield to maturity.
B. Yield to maturity assumes that all bond coupons can be reinvested at the same level of yield to maturity.
The relationship between bond prices and yields to maturity is convex.
D. The relationship between bond prices and yields to maturity is inverse.
E.
For a premium bond, the coupon rate is smaller than current yield.
Expert Solution
Conceptual Introduction:
A bond is a debt made by an investor to a borrower, like a business or the government. While the investor earns interest on their investment, the borrower utilises the money to finance its activities. Over time, a bond's market value may fluctuate.
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