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7-4 If interest rates rise after a bond issue, what will happen to the bond's price and YTM? Does the time to maturity affect the extent to which interest rate changes affect the bond's price? (Again, an example might help you answer this question.) 7-5 Discuss the following statement: A bond's yield to maturity is the bond's promised rate of return, which equals its expected rate of return. 7-6 If you buy a callable bond and interest rates decline, will the value of your bond rise by much as it would have risen if the bond had not been callable? Explain. as Assume that you have a short investment horizon (less than 1 year). You are considering two investments: a 1-year Treasury security and a 20-year Treasury security. Which of the two investments would you view as being riskier? Explain. 7-7 7-8 Indicate whether each of the following actions will increase or decrease a bond's yield to maturity: I a. The bond's price increases. b. The bond is downgraded by the rating agencies. c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy. d. The economy seems to be shifting from a boom to a recession. Discuss the effects of the firm's credit strength in your answer. e. Investors learn that the bonds are subordinated to another debt issue. 7-4 If interest rates rise after a bond issue, what will happen to the bond's price and YTM? Does the time to maturity affect the extent to which interest rate changes affect the bond's price? (Again, an example might help you answer this question.) 7-5 Discuss the following statement: A bond's yield to maturity is the bond's promised rate of return, which equals its expected rate of return. 7-6 If you buy a callable bond and interest rates decline, will the value of your bond rise by much as it would have risen if the bond had not been callable? Explain. as Assume that you have a short investment horizon (less than 1 year). You are considering two investments: a 1-year Treasury security and a 20-year Treasury security. Which of the two investments would you view as being riskier? Explain. 7-7 7-8 Indicate whether each of the following actions will increase or decrease a bond's yield to maturity: I a. The bond's price increases. b. The bond is downgraded by the rating agencies. c. A change in the bankruptcy code makes it more difficult for bondholders to receive payments in the event the firm declares bankruptcy. d. The economy seems to be shifting from a boom to a recession. Discuss the effects of the firm's credit strength in your answer. e. Investors learn that the bonds are subordinated to another debt issue