CONNECT WITH LEARNSMART FOR BODIE: ESSE
11th Edition
ISBN: 9781265046392
Author: Bodie
Publisher: MCG
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Chapter 11, Problem 9PS
Summary Introduction
Adequate Information:
In this situation, Nine year bond possesses duration of the 7.194 years and yield of 10%. If there is a change in the yield of bond by 50 basis points
To calculate:
Percentage change in the price of the bond
Introduction:
Bond refers to the debt instrument pertaining to which loan is provided by the investor to the governmental or corporate entity for a definite time period at a fixed or variable rate of interest.
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See the chart below. The top line shows the 90 day yield on corporate bonds and
the bottom line is the US Treasury bill (TB) rate for similar maturity. The yield is
shown on the y-axis. Notice that the gap between the two curves got wider during
the recession years of 2008-2009.
Which of the following reasons can possibly explain this widening?
FRED
6
сл
5
4
3
2
1
0
-1
2006
·
1950
2008
2010
2012
2014
Shaded areas indicate US recessions - 2014 research.stlouisfed.org
A) During the recession, the government decided to cut the tax rate on interest
earned from corporate bonds but not on interest earned on TB.
B) During the recession, the relative risk on corporate bonds increased.
C) During the recession, the relative liquidity of corporate bonds increased.
D) Two of the first three options can explain this.
E) All of the first three options can explain this.
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Chapter 11 Solutions
CONNECT WITH LEARNSMART FOR BODIE: ESSE
Ch. 11.2 - Prob. 1EQCh. 11.2 - Prob. 2EQCh. 11.2 - Prob. 3EQCh. 11.3 - Prob. 1EQCh. 11.3 - Prob. 2EQCh. 11.3 - Prob. 3EQCh. 11 - Prob. 1PSCh. 11 - Prob. 2PSCh. 11 - Prob. 3PSCh. 11 - Prob. 4PS
Ch. 11 - Prob. 5PSCh. 11 - Prob. 6PSCh. 11 - Prob. 7PSCh. 11 - Prob. 8PSCh. 11 - Prob. 9PSCh. 11 - Prob. 10PSCh. 11 - Prob. 11PSCh. 11 - Prob. 12PSCh. 11 - Prob. 13PSCh. 11 - Prob. 14PSCh. 11 - Prob. 15PSCh. 11 - Prob. 16PSCh. 11 - Prob. 17PSCh. 11 - Prob. 18PSCh. 11 - Prob. 19PSCh. 11 - Prob. 20PSCh. 11 - Prob. 21PSCh. 11 - Prob. 22PSCh. 11 - Prob. 23PSCh. 11 - Prob. 24PSCh. 11 - Prob. 25PSCh. 11 - Prob. 26PSCh. 11 - Prob. 27PSCh. 11 - Prob. 28PSCh. 11 - Prob. 29CCh. 11 - Prob. 1CPCh. 11 - Prob. 2CPCh. 11 - Prob. 3CPCh. 11 - Prob. 4CPCh. 11 - Prob. 5CPCh. 11 - Prob. 6CPCh. 11 - Prob. 7CPCh. 11 - Prob. 8CPCh. 11 - Prob. 9CPCh. 11 - Prob. 10CPCh. 11 - Prob. 11CPCh. 11 - Prob. 12CPCh. 11 - Prob. 1WMCh. 11 - Prob. 2WM
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