Answered step by step
Verified Expert Solution
Question
1 Approved Answer
T/F questions (1) Given the same interest rate, a cash flow's present value is always lower under a continuously compounded discount rate than any other
T/F questions (1) Given the same interest rate, a cash flow's present value is always lower under a continuously compounded discount rate than any other compounding style's discount rate. (2) I purchase an annuity that guarantees $365 per year for the rest of time. Interest rates are currently very low at r=0.2%. If interest rates rise I stand to make a profit on my investment. (3) If a bond's IRR is below its coupon rate, the bond will sell at below par value (that is, the price P will be less than the face value). (4) The yield to maturity of a bond is the net present value of a bond. (5) When we have constructed a portfolio that is immunized to yield rate changes, we still need to re-balance the portfolio once the yield rate changes. ( Prices of long-maturity bonds are less sensitive to interest rate changes than prices of short- maturity bonds. (7) It is possible to immunize a portfolio using duration and convexity with two bonds. (8) I need to worry about interest rate changes and fluctuating bond prices if I've already bought a bond and I've already decided to hold it to maturity. (9) The duration of a 10-year zero coupon bond is the weighted average time to maturity of the cash flows from the bonds which make up the zero coupon bond. (10) A 10-year zero coupon bond has a larger Macaulay duration than a 10-year 10.111% coupon bond. (11) In Project 1, including the constraint for a0 immunizes against shifts in the model spot rate curve. (12) If the spot rate curve is flat (i.e. st=r for all t), then all forward rates are equal. (13) Regardless of changes in short rates, a floating rate bond sold at par and held to maturity will always produce the same sum total of cash flows (coupons + face value). (14) Cash matching is carried out to minimize the number of bonds purchased. (15) All other things equal, issuing more shares of stock will decrease a company's theoretical stock price. a (1) Given the same interest rate, a cash flow's present value is always lower under a continuously compounded discount rate than any other compounding style's discount rate. (2) I purchase an annuity that guarantees $365 per year for the rest of time. Interest rates are currently very low at r=0.2%. If interest rates rise I stand to make a profit on my investment. (3) If a bond's IRR is below its coupon rate, the bond will sell at below par value (that is, the price P will be less than the face value). (4) The yield to maturity of a bond is the net present value of a bond. (5) When we have constructed a portfolio that is immunized to yield rate changes, we still need to re-balance the portfolio once the yield rate changes. ( Prices of long-maturity bonds are less sensitive to interest rate changes than prices of short- maturity bonds. (7) It is possible to immunize a portfolio using duration and convexity with two bonds. (8) I need to worry about interest rate changes and fluctuating bond prices if I've already bought a bond and I've already decided to hold it to maturity. (9) The duration of a 10-year zero coupon bond is the weighted average time to maturity of the cash flows from the bonds which make up the zero coupon bond. (10) A 10-year zero coupon bond has a larger Macaulay duration than a 10-year 10.111% coupon bond. (11) In Project 1, including the constraint for a0 immunizes against shifts in the model spot rate curve. (12) If the spot rate curve is flat (i.e. st=r for all t), then all forward rates are equal. (13) Regardless of changes in short rates, a floating rate bond sold at par and held to maturity will always produce the same sum total of cash flows (coupons + face value). (14) Cash matching is carried out to minimize the number of bonds purchased. (15) All other things equal, issuing more shares of stock will decrease a company's theoretical stock price. a
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started