Question
In: Finance
in a rising interest rate environment,how would bond values change over time. as a bond investor...
in a rising interest rate environment,how would bond values change over time. as a bond investor what measures would you take to manage risk
Solutions
Expert Solution
Bond price and interest rate have inverse relationship. The increase in interest rate would decrease the price of bond over time. In this situation bond investor should seek to purchase the bond at lower price and held this bond until maturity to avoid interest rate risk. Existing bondholders could immunize the risk by purchasing similar bond at lower price and selling the bond in future. Bond investor should avoid to sell the bond as it would receive lower price for its bond resulting in loss for the investor.
jeff jeffy answered 2 years agoRelated Solutions
In a rising interest rate environment, how would bond values change over time? As a bond...
In a rising interest rate environment, how would bond values
change over time? As a bond investor, what measures would you take
to manage rate risk?
In a rising interest rate environment, how would bond values change over time? As a bond...
In a rising interest rate environment, how would bond values
change over time? As a bond investor, what measures would you take
to manage rate risk?
compare how short term and long term bond values react differently to same interest rate change....
compare how short term and long term bond values react
differently to same interest rate change. In particular, determine
two different maturities for two separate bonds: one short term and
the other long term. Also, determine all the other relevant terms
shared by these two bonds: the face value, the coupon interest rate
together with payment frequency, and the discount rate or market
interest rate used. Calculate bond values. Then let the discount
rate or market interest rate increase by...
Explain the concept of how bond values change throughout time. Also explain the assumptions this will have...
Explain the concept of how bond values change throughout
time. Also explain the assumptions this will have for
interest rate risks.
Consider a 5-year bond with a 6 1/2% coupon interest rate. If interest rates are rising,...
Consider a 5-year bond with a 6 1/2% coupon interest rate. If
interest rates are rising, we would expect the price of the bond
to:
Explain the concept of how bond values change through time. Explain the implication(s) this pattern has...
Explain the concept of how bond values change through time.
Explain the implication(s) this pattern has for interesr rate risk.
Show the interest rate implication(s) at the end of your
answer.
1. If the interest rate is rising and stock prices are simultaneously rising, then according to...
1. If the interest rate is rising and stock prices are
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stock pricing
There must be irrational agents in the market
The expected dividends of firms must be falling
The future price of the stock must be falling
Expected dividends of firms must be rising
2. Consider the stable growth or steady state model of a stock
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1. How do you think today's low interest rate environment is
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of an asset or liability?
2. What is the relationship between the concepts of net present
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1. How do you think today's low interest rate environment is impacting the time value of...
1. How do you think today's low interest rate environment is
impacting the time value of money? How might this change the value
of an asset or liability?
2. What is the relationship between the concepts of net
present value and shareholder wealth maximization?
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