Question
True/False Please explain your answers 1. An investor bought a 30-year coupon-paying bond on January 1st, 2017. The bond pays a coupon C at the
True/False Please explain your answers
1. An investor bought a 30-year coupon-paying bond on January 1st, 2017. The bond pays a coupon C at the end of each calendar year. By January 1st, 2018 interest rates have increased at all maturities. The Holding Period Return of this investment from 1/1/2017 to 1/1/2018 must have been negative.
2. Assume that two bonds, A and B, are similar in all respects but A has more convexity than B. If the yield is the same on both bonds, then you would prefer bond A.
3. The Fed issues a statement there will be large economic fluctuations in the coming months due to the difficulty in accurately estimating the impact of the coronavirus. You expect that option prices should increase as a result of this news.
4. There is a very volatile security which pays you a positive return when the market performs poorly and a negative return when the market performs well. The expected return on this asset is 2%, which is equal to the risk-free rate. It would never be optimal to include this asset in a rational mean-variance investors portfolio.
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