Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. construct some simple examples to illustrate your

Construct some simple examples to illustrate your answers to the following: a. If interest rates fall, do...

60.1K

Verified Solution

Question

Finance

Construct some simple examples to illustrate your answers to thefollowing:

a. If interest rates fall, do bond prices rise or fall?

b. If the bond yield to maturity is less than the coupon, is theprice of the bond greater or less than the par value?

c. If the price of a bond is below the par value, is the yieldto maturity greater or less than the coupon?

d. Do low-coupon bonds sell at higher or lower prices thanhigh-coupon bonds?

e. If interest rates change, do the prices of high-coupon bondschange proportionately more than that of low-coupon bonds?

Answer & Explanation Solved by verified expert
4.2 Ratings (648 Votes)
a If interest rates fall do bond prices rise or fall Bond price is inversely related to interest rates or YTM Hence if interest rate falls prices of the bond rises Example Assume a zero coupon bond of face value 1000 and with 5 years maturity and yield of 8 Price Face value 1 yn 1000 1 85 68058 Lets say interest rate falls by 1 That is YTM y 8 1 7 HEnce Price now 1000 1 75 71299 Thus price of the bond rises when interest rate falls b If the bond yield to maturity is less than the coupon is the price of the bond greater or less than the par value If the bond yield to maturity is less than the coupon the bond is trading    See Answer
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Transcribed Image Text

Construct some simple examples to illustrate your answers to thefollowing:a. If interest rates fall, do bond prices rise or fall?b. If the bond yield to maturity is less than the coupon, is theprice of the bond greater or less than the par value?c. If the price of a bond is below the par value, is the yieldto maturity greater or less than the coupon?d. Do low-coupon bonds sell at higher or lower prices thanhigh-coupon bonds?e. If interest rates change, do the prices of high-coupon bondschange proportionately more than that of low-coupon bonds?

Other questions asked by students

Q

2. As of July 2004, American Institute for Foreign Study (AIFS) hedge all its costs. Make...

Finance
Q

what is the bioactivity of n-phenylphthalimide in the human body?

Biology
Q

A football is kicked straight up into the air; it hits the ground 3.6 s later. Part...

Physics
Q

A professor has recently taught two sections of the same course with only one difference between...

Basic Math
Q

A hot body at temperature T losses heat to the surrounding temperature Ts by radiation...

Physics
Q

A light ray falling at an angle of 45 with the surface of a clean...

Physics
Q

A hypothetical planet of mass m is moving along an elliptical path around sun of...

Physics
Q

In which quadrants are the cosine ratios negative values OA second and fourth B first...

Basic Math
Q

In a class of 45 students, 26 are Democrats, 9 are business majors, and 5...

Basic Math
Q

Siven the points graphed in the following figure use quadratic regression to find the quadratic...

Statistics
Q

The price of Houndles, a consumer product, has recently been increased. The effect of this...

Accounting
Q

1-Queries in Access are utilized by users to enter data into tables and view existing...

Accounting