Which of the following statements is CORRECT O If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10% yield to maturity, and if interest rates then dropped to the point where rd=YTM = 5%, the bond would sell at a premium over its $1,000 par value. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond because it would have a shorter expected life. Bonds are exposed to both reinvestment rate and interest rate price risk. Longer-term low-coupon bonds, relative to shorter-term high-coupon bonds, are generally more exposed to reinvestment rate risk than interest rate price risk. Other things held constant, including the coupon rate, a corporation would rather issue noncallable bonds than callable bonds. If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates then dropped to the point where rd=YTM = 5% we could be sure that the bond would sell at
Which of the following statements is CORRECT O If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10% yield to maturity, and if interest rates then dropped to the point where rd=YTM = 5%, the bond would sell at a premium over its $1,000 par value. Other things held constant, a callable bond would have a lower required rate of return than a noncallable bond because it would have a shorter expected life. Bonds are exposed to both reinvestment rate and interest rate price risk. Longer-term low-coupon bonds, relative to shorter-term high-coupon bonds, are generally more exposed to reinvestment rate risk than interest rate price risk. Other things held constant, including the coupon rate, a corporation would rather issue noncallable bonds than callable bonds. If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates then dropped to the point where rd=YTM = 5% we could be sure that the bond would sell at
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
Transcribed Image Text:Which of the following statements is CORRECT
If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a
10% yield to maturity, and if interest rates then dropped to the point where rd=YTM=
5%, the bond would sell at a premium over its $1,000 par value.
Other things held constant, a callable bond would have a lower required rate of return
than a noncallable bond because it would have a shorter expected life.
Bonds are exposed to both reinvestment rate and interest rate price risk. Longer-term
low-coupon bonds, relative to shorter-term high-coupon bonds, are generally more
exposed to reinvestment rate risk than interest rate price risk.
Other things held constant, including the coupon rate, a corporation would rather issue
noncallable bonds than callable bonds.
If a 10-year, $1,000 par, 10% coupon bond were issued at par, and if interest rates then
dropped to the point where rd=YTM = 5%, we could be sure that the bond would sell at
a premium above its $1,000 par value.
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 3 steps
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