Which answer is FALSE regarding bond prices and interestrates?A.) Bond prices and interest rates...

Which answer is FALSE regarding bond prices and interest rates?

A.) Bond prices and interest rates move in opposite directions.

B.) The prices of short-term bonds display greater price sensitivity to interest rate changes than do the prices of long-term bonds.

C.) Interest rate risk can be described as the risk that changes in market interest rates will cause fluctuations in the bond’s price.

D.) The price of a bond is the present value of the coupon payments and the face value.

Expert Solution

correct answer is option = B.) The prices of short-term bonds display greater price sensitivity to interest rate changes than the prices of long-term bonds.

Statement B is false because long-term bonds display greater price sensitivity to interest rate change than the short term. The Rest of the statements are correct. Bond price and interest rate move in opposite directions, and the bond's price is present value compound payment and maturity value.

jeff jeffy answered 2 years ago

Which answer is TRUE regarding bond prices and interest rates? Bond prices and interest rates move...

Which answer is TRUE regarding bond prices and interest rates? Bond prices and interest rates move in opposite directions. Interest rate risk is the risk that a company will default on its interest payments. The prices of short-term bonds display greater price sensitivity to interest rate changes than do the prices of long-term bonds. The price of a bond is the future value of the coupon payment and the face value.

Which of the following statements regarding bond prices and market interest rates are most likely to...

Which of the following statements regarding bond prices and market interest rates are most likely to be true? 1. Interest rate risk can be described as the changes in market interest rates that will cause fluctuations in a bond’s price. 2. Bond prices and market interest rates are negatively related to each other. 3. Coupon paying bonds will trade at a premium to their face value because of the future cash flows expected by bond investors.

Interest rates and bond prices, move inversely. For example, when interest rates decline, bond prices increase;...

Interest rates and bond prices, move inversely. For example, when interest rates decline, bond prices increase; when interest rates increase, bond prices decrease. Provide a quantitative example, illustrating the effect of interest rates on bond pricing? As well, explain how the length of bond maturity and higher/lower coupon rates can affect bond prices when interest rates rise and fall in the economy.

What happens to Bond prices, quantities and interest rates if there is a... a) Decrease in...

What happens to Bond prices, quantities and interest rates if there is a... a) Decrease in wealth b) Increase in risk c) Decrease in liquidity

If interest rates rise, bond prices will fall. Given the following pairs of bonds, indicate which...

If interest rates rise, bond prices will fall. Given the following pairs of bonds, indicate which bond’s price will experience the greater price decline. a.) Bond A Coupon:10% Maturity: 5 years Bond B Coupon: 6% Maturity: 5 years b.) Bond A Coupon: 10 % Maturity: 7 years Bond B Coupon: 10% Maturity: 15 years c.) Bond A Coupon: 10% Maturity: 5 years Bond B Coupon: 6% Maturity: 8 years d.) Bond...

True or False? 5. In general, if interest rates rise, the prices of existing bonds rise....

True or False? 5. In general, if interest rates rise, the prices of existing bonds rise. 6. If a company defaults on its bonds, interest continues to accrue but may not be paid. 7. Current yield provides the best measure of a bond’s investment return. 8. Preferred stock dividends are usually fixed. 9. If a cumulative preferred stock’s dividend is in arrears, the dividend is not being paid. 10. Corporations are obligated to pay cash dividends if they generate earnings....

The table below is illustrative of the relationship between changes in interest rates and bond prices...

The table below is illustrative of the relationship between changes in interest rates and bond prices Change in Interest Rate Change in Bond’s Value Increase Increase Decrease Decrease True False

What will happen to bond prices in the market if market interest rates rise? The following...

What will happen to bond prices in the market if market interest rates rise? The following table summarizes the yields to maturity on several one-year, zero-coupon securities: Treasury Yield (%) Treasury 0.9 AAA corporate 2.2 BBB Corporate 3.2 B Corporate 3.8 -What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with an AAA rating? What is the credit spread on AAA-rated corporate bonds? What is the credit spread on B-rated corporate...

Explain why it is the case that bond prices fluctuate in response to changing interest rates....

Explain why it is the case that bond prices fluctuate in response to changing interest rates. What adverse effect might occur if bond prices remain fixed prior to their maturity? What is meant by “default risk” in bonds, and how do investors respond to it? Why do bonds exhibit interest rate risk? Why do investors pay attention to bond ratings and demand a higher interest rate for bonds with low ratings? How much would an investor lose if she purchased...

1) the relationship between bond prices and interest rates? 2) the effects of a change in...

1) the relationship between bond prices and interest rates? 2) the effects of a change in the reserve ratio on the money supply? 3) open market purchases of securities by the Fed and the effect of this on the money supply? 4) open market sales of securities by the Fed and the effect of this on the money supply? 5) open market operations and the corresponding change in bond prices and interest rates? 6) the effects of monetary policy on...

Question