Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds. Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 16, Problem 1PS

Summary Introduction

To determine: Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds.

Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Expert Solution & Answer

Answer to Problem 1PS

Short term bonds are more volatile in terms of yields to maturity and long term bonds are more volatile in terms of price.

Explanation of Solution

Given Information:

Prices and yields to maturity for both long and short terms of bond are given.

As in Short term bonds, the yielding amount is low the risk factor involved is minimum. On the other hand the long term bonds pose agreater risk, because the investor’s money is locked up for longer period. There would be chances of price fluctuations.

In long term bond, the maturity period is higher in comparison to the short term bonds. So, the price in long term is more sensitive than that of the short term bonds.

The rate of charged interests may be fluctuating with higher duration than the near future. So, yields to maturity in short term bonds are more volatile.

Hence, the long duration of maturity period makes the long term bonds more volatile in price but less volatile in terms of interest.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Need answer correctly if image is blurr then please comment i will write values. dont give answer with incorrect data . i will give unhelp

Consider the following gasoline sales time series. If needed, round your answers to two decimal digits. Week Sales (1,000s of gallons) 1 17 2 21 3 19 4 23 5 18 6 16 7 20 8 18 9 22 10 20 11 15 12 22 (a) Show the exponential smoothing forecasts using α = 0.1, and α = 0.2. ExponentialSmoothing Week α = 0.1 α = 0.2 13 (b) Applying the MSE measure of forecast accuracy, would you prefer a smoothing constant of α = 0.1 or α = 0.2 for the gasoline sales time series? An smoothing constant provides a more accurate forecast, with an overall MSE of . (c) Are the results the same if you apply MAE as the measure of accuracy? An smoothing constant provides a more accurate forecast, with an overall MAE of . (d) What are the results if MAPE is used? An smoothing constant provides a more accurate forecast, with an overall MAPE of .

After many sunset viewings at SUNY Brockport, Amanda dreams of owning a waterfront home on Lake Ontario. She finds her perfect house listed at $425,000. Leveraging the negotiation skills she developed at school, she persuades the seller to drop the price to $405,000. What would be her annual payment if she opts for a 30-year mortgage from Five Star Bank with an interest rate of 14.95% and no down payment? a- $25,938 b- $26,196 c- $24,500 d- $27,000

Answer 2

Question

Chapter 16, Problem 1PS

Summary Introduction

To determine: Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds.

Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Expert Solution & Answer

Answer to Problem 1PS

Short term bonds are more volatile in terms of yields to maturity and long term bonds are more volatile in terms of price.

Explanation of Solution

Given Information:

Prices and yields to maturity for both long and short terms of bond are given.

As in Short term bonds, the yielding amount is low the risk factor involved is minimum. On the other hand the long term bonds pose agreater risk, because the investor’s money is locked up for longer period. There would be chances of price fluctuations.

In long term bond, the maturity period is higher in comparison to the short term bonds. So, the price in long term is more sensitive than that of the short term bonds.

The rate of charged interests may be fluctuating with higher duration than the near future. So, yields to maturity in short term bonds are more volatile.

Hence, the long duration of maturity period makes the long term bonds more volatile in price but less volatile in terms of interest.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 16, Problem 1PS

Summary Introduction

To determine: Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds.

Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Expert Solution & Answer

Answer to Problem 1PS

Short term bonds are more volatile in terms of yields to maturity and long term bonds are more volatile in terms of price.

Explanation of Solution

Given Information:

Prices and yields to maturity for both long and short terms of bond are given.

As in Short term bonds, the yielding amount is low the risk factor involved is minimum. On the other hand the long term bonds pose agreater risk, because the investor’s money is locked up for longer period. There would be chances of price fluctuations.

In long term bond, the maturity period is higher in comparison to the short term bonds. So, the price in long term is more sensitive than that of the short term bonds.

The rate of charged interests may be fluctuating with higher duration than the near future. So, yields to maturity in short term bonds are more volatile.

Hence, the long duration of maturity period makes the long term bonds more volatile in price but less volatile in terms of interest.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 16, Problem 1PS

Summary Introduction

To determine: Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds.

Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Expert Solution & Answer

Answer to Problem 1PS

Short term bonds are more volatile in terms of yields to maturity and long term bonds are more volatile in terms of price.

Explanation of Solution

Given Information:

Prices and yields to maturity for both long and short terms of bond are given.

As in Short term bonds, the yielding amount is low the risk factor involved is minimum. On the other hand the long term bonds pose agreater risk, because the investor’s money is locked up for longer period. There would be chances of price fluctuations.

In long term bond, the maturity period is higher in comparison to the short term bonds. So, the price in long term is more sensitive than that of the short term bonds.

The rate of charged interests may be fluctuating with higher duration than the near future. So, yields to maturity in short term bonds are more volatile.

Hence, the long duration of maturity period makes the long term bonds more volatile in price but less volatile in terms of interest.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 16, Problem 1PS

Summary Introduction

To determine: Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds.

Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Expert Solution & Answer

Answer to Problem 1PS

Short term bonds are more volatile in terms of yields to maturity and long term bonds are more volatile in terms of price.

Explanation of Solution

Given Information:

Prices and yields to maturity for both long and short terms of bond are given.

As in Short term bonds, the yielding amount is low the risk factor involved is minimum. On the other hand the long term bonds pose agreater risk, because the investor’s money is locked up for longer period. There would be chances of price fluctuations.

In long term bond, the maturity period is higher in comparison to the short term bonds. So, the price in long term is more sensitive than that of the short term bonds.

The rate of charged interests may be fluctuating with higher duration than the near future. So, yields to maturity in short term bonds are more volatile.

Hence, the long duration of maturity period makes the long term bonds more volatile in price but less volatile in terms of interest.

Answer 6

Chapter 16, Problem 1PS

Summary Introduction

To determine: Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds.

Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Expert Solution & Answer

Answer to Problem 1PS

Short term bonds are more volatile in terms of yields to maturity and long term bonds are more volatile in terms of price.

Explanation of Solution

Given Information:

Prices and yields to maturity for both long and short terms of bond are given.

As in Short term bonds, the yielding amount is low the risk factor involved is minimum. On the other hand the long term bonds pose agreater risk, because the investor’s money is locked up for longer period. There would be chances of price fluctuations.

In long term bond, the maturity period is higher in comparison to the short term bonds. So, the price in long term is more sensitive than that of the short term bonds.

The rate of charged interests may be fluctuating with higher duration than the near future. So, yields to maturity in short term bonds are more volatile.

Hence, the long duration of maturity period makes the long term bonds more volatile in price but less volatile in terms of interest.

Answer 7

Chapter 16, Problem 1PS

Summary Introduction

To determine: Reconciliation of the two empirical observations that the price and yields to maturity of long term bonds are more volatile than short term bonds.

Introduction: In long term bonds, the issuer pay higher interest rates for exchange of more security. The short term bonds have minimum period for maturity,but they provide a higher liquidity.

Answer 8

Expert Solution & Answer

Answer to Problem 1PS

Short term bonds are more volatile in terms of yields to maturity and long term bonds are more volatile in terms of price.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Explanation of Solution

Given Information:

Prices and yields to maturity for both long and short terms of bond are given.

As in Short term bonds, the yielding amount is low the risk factor involved is minimum. On the other hand the long term bonds pose agreater risk, because the investor’s money is locked up for longer period. There would be chances of price fluctuations.

In long term bond, the maturity period is higher in comparison to the short term bonds. So, the price in long term is more sensitive than that of the short term bonds.

The rate of charged interests may be fluctuating with higher duration than the near future. So, yields to maturity in short term bonds are more volatile.

Hence, the long duration of maturity period makes the long term bonds more volatile in price but less volatile in terms of interest.

Answer 12

Ch. 16 - Prob. 1PS Ch. 16 - Prob. 2PS Ch. 16 - Prob. 3PS Ch. 16 - Prob. 4PS Ch. 16 - Prob. 5PS Ch. 16 - Prob. 6PS Ch. 16 - Prob. 7PS Ch. 16 - Prob. 8PS Ch. 16 - Prob. 9PS Ch. 16 - Prob. 10PS

Videos

Answer to Problem 1PS

Explanation of Solution

Want to see more full solutions like this?

Chapter 16 Solutions