Which of the following statements is CORRECT? O The yield on á 5-year Treasury bond cannot exceed the yield on a 20-year Treasury bond. O The following represents a "possibly reasonable" formula for the maturity risk premium on bonds: MRP = -0.1% (t), where t is the years to maturity. O The yield on a 10-year AAA-rated corporate bond should always exceed the yield on a 5- year AAA-rated corporate bond. O The yield on a 3-year corporate bond should always exceed the yield on a 2-year corporate bond. O The yield on a 10-year corporate bond should always exceed the yield on a 10-year Treasury bond.

Which of the following statements is CORRECT? O The yield on á 5-year Treasury bond cannot exceed the yield on a 20-year Treasury bond. O The following represents a "possibly reasonable" formula for the maturity risk premium on bonds: MRP = -0.1% (t), where t is the years to maturity. O The yield on a 10-year AAA-rated corporate bond should always exceed the yield on a 5- year AAA-rated corporate bond. O The yield on a 3-year corporate bond should always exceed the yield on a 2-year corporate bond. O The yield on a 10-year corporate bond should always exceed the yield on a 10-year Treasury bond.

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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Similar questions

Everything else being equal, the price of which of the following bonds is most sensitive to interest rate changes? A 15-year zero-coupon bond B) A 15-year 4% coupon bond C) A 15-year 8% coupon bond D) A 20-year zero-coupon bond E) A 20-year 8% coupon bond
Assume the real risk-free is 1% and the average annual expected inflation rate is 4%. The DRP and LP for bond A are each 3%, and the applicable MRP is 3%. What is Bond A's interest rate?
What is the default risk premium on Aaa corporate bond, if the interest rate on that bond is 3.25 percent and the interest rate on a Treasury security is 1.16 percent?
***YTC, YTM, and holding period yield they all refer to the r in the formula: P=C*[1-1/(1+r)^t]/r + F/(1+r)^t. They are just different expressions under different circumstances. 9. What is the yield to call (YTC) of a 30-year 6% bond selling for $940? The call deferment period for the bond is 10 years. Call premium=30. [Hint: It means that your N=10*2=20, and your face value=1030] 10. What is the yield to call (YTC) of a 20-year 8% bond selling for $1030? The call deferment period for the bond is 5 years. Call premium=40. [Hint: It means that your N=5*2=10, and your face value=1040] 11. Still considering the same bond as question 10, suppose you buy it today, but expect to sell it in 2 years at a YTM=4%. That is, you expect the yield to maturity on this bond to be 4% when you sell it in 2 years. What price do you expect to sell it for? What is your expected holding period yield if you buy it today and sell it at the expected sell price? 12. What is the holding period yield on a 30-year…
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R₁ = 4.80%, E(2r₁) = 5.45%, E(3r₁) = 5.95%, E(41) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? A. 5.57% B. 5.62% C. 5.83% D. 6.10%
Which of the comments below is the most accurate?a. Long-term bonds have a higher interest rate price danger than short-term bonds, but they have a lower reinvestment rate risk.b. Bonds with higher coupons have higher interest rate price danger, but lower reinvestment rate risk.c. If interest rates stay unchanged for the next five years, the price of a discount bond would still remain unchanged.d. Both b and c are valid statements.e. All of the above claims are true.
Which one of the following bonds is the least sensitive to interest rate risk? Group of answer choices 5-year; 7 percent coupon 10-year; 6 percent coupon 10-year; 7 percent coupon 15-year; 6 percent coupon 15-year; 7 percent coupon
Which type of bonds will have more volatile prices and returns? A. 30-year Treasuries B. 10-year Treasuries
Which of the following statements is right? Group of answer choices a)Ignoring the liquidity risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. b)Ignoring the default risk, the 10-treasry bond should have the same interest rate as the 10-year corporate bond. c)The return of the 10-year treasury bond must be less than that of the 10-year corporate bond d)The return of the 10-year treasury bond must be greater than that of the 10-year corporate bond
Suppose that the current one-year rate (one-year spot rate) and expected one-year government bonds over years 2, 3 and 4 are as follows: 1R1 = 4.80%, E(2r1) = 5.45%, E(3r1) = 5.95%, E(4r1) = 6.10% Assume that there are no liquidity premiums. To the nearest basis point, what is the current rate for the four-year-maturity government bond? 5.57% 5.62% 5.83% 6.10%
Please answer 6D.
12. Suppose that 1-year bonds currently offer a nominal yield to maturity of 4% (1,0 = 0.04), otherwise comparable 2-year bonds currently offer a yield to maturity of 4.5% (12,0 = 0.045), and 3 year bonds currently offer a yield to maturity of 4.8% (13,0 = 0.048). a. Draw the current yield curve. b. Based on the Expectations Theory of Term Structure, what yield to maturity do investors expect next year's 1 year bonds to earn (i.e. - what is it,1)? c. What do investors expect the yield to be on 1 year bonds in two years (11,2 = ?)? d. What do investors expect the yield to be on 2 year bonds next year (i2,1 =?)?

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