Question
The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining maturity. True False Assume
The price sensitivity of a bond to a given change in interest rates is generally greater the longer the bond's remaining maturity.
True
False
Assume that interest rates on 20-year Treasury and corporate bonds are as follows:
T-bond = 7.72% AAA = 8.72% A = 9.64% BBB = 10.18% The differences in these rates were probably caused primarily by:
a. | Real risk-free rate differences. | |
b. | Tax effects. | |
c. | Maturity risk differences. | |
d. | Inflation differences. | |
e. | Default and liquidity risk differences. |
The "yield curve" shows the relationship between bonds' maturities and their yields.
True
False
An upward-sloping yield curve is often call a "normal" yield curve, while a downward-sloping yield curve is called "abnormal."
True
False
A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years to maturity, cannot be called, and is not expected to default. The bond should sell at a premium if market interest rates are below 10% and at a discount if interest rates are greater than 10%.
True
False
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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