Question

Bond Relationships. Select one or more of the following phrases to complete the following sentences. increase, decrease, par, discount, premium, less than, more than, greater , less

a. If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a

___________.

b. The value of a bond to increase if there is a/an ________ in interest rates.

c. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a

_____________.

d. As interest rate increases the value of a bond will ______________.

e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at _________.

f. A premium bond sells for ____________ as maturity approaches.

g. The discount bond sells for ____________ as maturity approaches.

h. A bondholder with a short-term bond is exposed to ___________ interest rate risk than when owing a long-term bond.

Answer 1

The whole question is based on below concepts-

• the bond will trade at discount as YTM>coupon rate
• the bond will trade at Premium as YTM<coupon rate

• the bond will trade at par as YTM=coupon rate

• Bond price approaches to redemption price as time passes.

a. If the current interest rate exceeds the bond’s coupon rate, the bond will sell at a

__discount_________.

b. The value of a bond to increase if there is a/an _____decrease___ in interest rates.

c. A bond’s coupon rate is more than the interest rate, therefore the bond is selling at a

_______premium______.

d. As interest rate increases the value of a bond will ____decrease__________.

e. If the bondholder’s required rate of return equals the coupon interest rate, the bond will sell at ___par______.

f. A premium bond sells for _____less than_______ as maturity approaches.

g. The discount bond sells for _______more than_____ as maturity approaches.

h. A bondholder with a short-term bond is exposed to ____less_______ interest rate risk than when owing a long-term bond.