Question

In: Finance

1a. Which of the following does the sensitivity of the bond price to the changes in...

1a. Which of the following does the sensitivity of the bond price to the changes in interest rates depend on?

		Maturity of the bond
		Coupon rate
		Both maturity of the bond and the coupon rate
		None

`1b. Which of the following is correct when the Coupon Rate of a bond is equal to its Yield to Maturity?

		The price of this bond is equal to its face value.
		The price of this bond is higher than its face value.
		The price of this bond is lower than its face value.
		None.

1c. Which of the following is correct for stocks?

		Cash flows from stocks are known and guarranteed.
		Maturity of stocks is a specific known date.
		The quantity of cash flows (the number of payments) from stocks are unknown.
		End value of stocks are known.

Expert Solution

Answer to 1a

The correct answer is Both Maturity and Coupon Rate

The sensitivity of Bond price with respect to Interest Rate is measured is called Duration of the Bond Price.The calculation of Duration multiple bond charecteristics including Maturity and Coupon Rates
Therefore the correct answer is Both Maturity and Coupon Rate

Answer to 1b

The correct Answer is Bond Price = the face value of Bond

The Price of Bond is computed by discounting all the cash flows of the bond using the market rate of retrun . So if the Coupon Rate = the Market Interest Rates the bond price will be equal its par value.

If Coupon Rate is Greater than the Market Rate of Retrun the price of Bond will be greater than the par value.

If Coupon Rate is less than the Market Rate of Retrun the price of Bond will be less than the par value of the bond

Answer to 1c

For stocks the cash flows are the dividend. Morevover the stocks do not have a fized date of redemption nor carrry a fixed par value as in case of bond. The dividend amount are also dependand on the company's growth and payout ratio. There is no fixed mandate to pay the equity shareholders dividends. Therefore niether the cash flows of the stock are gauranteed or its end value. Moreover the stocks do not have any maturity date

Therfore the correct answer is "The quantity of cash flows (the number of payments) from stocks are unknown.".

jeff jeffy answered 1 year ago

Which of the following does the sensitivity of the bond price to the changes in interest...

Which of the following does the sensitivity of the bond price to the changes in interest rates depend on? Maturity of the bond Coupon rate Both maturity of the bond and the coupon rate None Which of the following is correct when the Coupon Rate of a bond is equal to its Yield to Maturity? The price of this bond is equal to its face value. The price of this bond is higher than its face value. The price of...

Calculate the bond price, duration, actual changes in bond price, and changes in bond price based...

Calculate the bond price, duration, actual changes in bond price, and changes in bond price based on duration. Coupons are paid at the end of each year. (Mostly need help with the bottom section) Maturity, in years 20 YTM 5% Coupon rate 6% Face value 1,000 Bond price Year Ct t*Ct/(Price*(1+YTM)^t) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Duration Change in YTM Actual change in bond price...

McGilla Golf would like to know the sensitivity of NPV to changes in the price of...

McGilla Golf would like to know the sensitivity of NPV to changes in the price of the new clubs and the quantity of new clubs sold. The clubs will sell for $845 per set and have a variable cost of $405 per set. The company has spent $150,000 for a marketing study that determined the company will sell 60,000 sets per year for seven years. The marketing study also determined that the company will lose sales of 10,000 sets of...

a. Explain which of the following bonds has higher interest rate sensitivity. Bond A is a...

a. Explain which of the following bonds has higher interest rate sensitivity. Bond A is a 15-year, noncallable bond with a coupon rate of 7%, selling at par. Bond B is a 15-year, callable bond with a coupon rate of 9%, also selling at par. b. Tony, a fixed-income portfolio manager, is managing a portfolio of $10 million. His target duration is 7 years, and he can choose from two bonds: a zero-coupon bond with maturity of 3 years, and...

Which of the following is the name for the risk of changes in the price or...

Which of the following is the name for the risk of changes in the price or value of fixed-rate debt instruments resulting from changes in market interest rates? Default risk Liquidity risk Inflation risk Interest rate risk

1a. Changes in which of the following would affect the focal length of a thin glass...

1a. Changes in which of the following would affect the focal length of a thin glass lens? You must choose all correct answers. a. wavelength of light that it is focusing b. the medium in which the lens is immersed (e.g. air, water) c. index of refraction of the glass d. curvature of its 2 refracting surfaces 1b. Changes in which of the following would affect the focal length of a glass mirror with a reflective silver coating on its...

A) The price of which of the following will be more sensitive to changes in interest...

A) The price of which of the following will be more sensitive to changes in interest rates. Explain your answer. Proper explanation / calculations required Bond X. 2-year 15% coupon bond with a face value of $1000 that pays semi-annual coupons and is trading at a yield of 26% Or Bond Y. A Zero-Coupon Bond that has a maturity of 18 months B) What is the price of the Bond X . above ? C) Would your answer to part A change...

All else the same, the price sensitivity of a larger coupon bond to change in interest...

All else the same, the price sensitivity of a larger coupon bond to change in interest rate is ___ that of a smaller coupon bond. A. either greater than or the same as B. smaller than C. the same as D. greater than

1) Find the price for a 7.5% coupon bond under the following conditions. 1a. 30 years...

1) Find the price for a 7.5% coupon bond under the following conditions. 1a. 30 years to maturity, required return is 9% 1b. 30 years to maturity, required return is 7.5% 1c. 30 years to maturity, required return is 6% 1d. 10 years to maturity, required return is 9% 1e. 10 years to maturity, required return is 7.5% 1f. 10 years to maturity, required return is 6% 1g. 2 years to maturity, required return is 9% 1h. 2 years to...

Relate price changes in bond markets to price changes in stock markets. Explain why prices move...

Relate price changes in bond markets to price changes in stock markets. Explain why prices move or do not move together.