Question

In: Finance

QUESTION 43 How many of the following statements is/are true? Statement 1: An increase in the...

QUESTION 43

  1. How many of the following statements is/are true?

Statement 1: An increase in the market YTM after a bond is purchased but before the first coupon date will lead to a realized return equal to the YTM of the bond when the bond was purchased for a buy-and-investor.

Statement 2: A decrease in the market YTM after a bond is purchased but before the first coupon date will lead to a realized return equal to the YTM of the bond when the bond was purchased for a buy-and-investor.

Statement 3: A floating rate bond earns a rate of return equal to the YTM of the bond when it was purchased.

a.

0

b.

1

c.

2

Solutions

Expert Solution

Statement 1 is false. An increase in the YTM would mean that the coupon payments can be reinvested at a higher rate (assuming that current YTM is the reinvestment rate). Therefore, the realized return for a buy-and-hold investor would be higher than the YTM of the bond when the bond was purchased. This is because the coupon payments can be reinvested at a higher rate (YTM).

Statement 2 is false. A decrease in the YTM would mean that the coupon payments can be reinvested at a lower rate (assuming that current YTM is the reinvestment rate). Therefore, the realized return for a buy-and-hold investor would be lower than the YTM of the bond when the bond was purchased. This is because the coupon payments can be reinvested at a lower rate (YTM).

Statement 3 is false. The rate of return earned would depend on the change in interest rates over the holding period, and the time period between the rate reset dates. A long time period would not mirror the market interest rates very closely, and hence the realized return would differ from the YTM.

The answer is (a) - none of the statements are true

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

1. Determine if the following statements are true or false. If a statement is true, prove...
1. Determine if the following statements are true or false. If a statement is true, prove it in general, If a statement is false, provide a specific counterexample. Let V and W be finite-dimensional vector spaces over field F, and let φ: V → W be a linear transformation. A) If φ is injective, then dim(V) ≤ dim(W). B) If dim(V) ≤ dim(W), then φ is injective. C) If φ is surjective, then dim(V) ≥ dim(W). D) If dim(V) ≥...
Question 1. How many statements are true? (A) 0 (B) 1 (C) 2 (D) 3 (E)...
Question 1. How many statements are true? (A) 0 (B) 1 (C) 2 (D) 3 (E) 4 Statement 1. Scheduled receipts are future receipts of past order releases Statement 2. The MPS contains the GR of the end -item. Statement 3. The POR is the inventory policy of the MRP Statement 4. MRP minimizes cost. Part 2. Questions 2,3,4. Consider the end-item weekly MRPs for May 1 with Qd missing in each MRP. Match the correct MRP with the proper...
Question 1. How many statements are true? (A) 0   (B) 1   (C) 2   (D) 3   (E)...
Question 1. How many statements are true? (A) 0   (B) 1   (C) 2   (D) 3   (E) 4 Statement 1. The P and C charts are for attributes and the M and R charts are for variables. Statement 2. The upper control limit is three standard deviations of the mean above the center line and the lower control limit is three standard deviations of the mean below the mean of the quality characteristic. Statement 3. The sample size for the experiment...
How many statements are false? Statement 1: Adjusting for the quality of the products in a...
How many statements are false? Statement 1: Adjusting for the quality of the products in a basket used for a price index is called hedonic pricing. Statement 2: Using the Laspeyres index has three biases, namely, substitution, quality, and economic biases. Statement 3: The Fischer index is the geometric mean of the Laspeyres index and the Paasche index.
Which of the following statements are true? A. An increase in inventory is a use of...
Which of the following statements are true? A. An increase in inventory is a use of cash that may require a short term financing arrangement, like a bank line of credit. B. Retained earnings are not a source of funding for capital projects. C. The Additional Funds Needed (AFN) amount is estimated based on assumptions about the increase in total assets (increase in working capital and capital investment) less the forecasted increases in liabilities (vendor financing) and the amount of...
How many of the following statements are true? -The Wilcoxon signed-rank of differences requires that the...
How many of the following statements are true? -The Wilcoxon signed-rank of differences requires that the data be at least ordinal scaled and that the two samples be independent. -Nonparametric tests may be used with variables that are measured with a nominal, ordinal, interval, or ratio scale. -The test statistic for the null hypothesis that the correlation among the ranks is equal to zero is a t statistic -We can apply parametric tests, such as the t-test, to ordinal or...
Question 2 [10] TRUE/FALSE QUESTIONS Consider the following list of statements. Each statement is either true...
Question 2 [10] TRUE/FALSE QUESTIONS Consider the following list of statements. Each statement is either true or false. You must read each statement carefully and then select the option that you believe is correct as your answer. Write down only the question number and next to the number either “True” or “False”. 2.1. The level or rate of unemployment is a stock concept, that is, it is measured at a particular date. 2.2. The consumer price index (CPI) is an...
1. Any “case” statement can be written as an “if” statement. True False 2.How many iterations...
1. Any “case” statement can be written as an “if” statement. True False 2.How many iterations does the following “loop” statement have? n = 1 loop do n = n + 1 puts “hey" next unless n = 10 break end 0 7 This loop is syntactically incorrect. 9 8 3.The following two conditional expressions are equivalent outcome wise: n = 1 begin puts n end while n < 1 n = 1 while n < 1 puts n end...
State whether the following statements are true or false statement T/F 1. Fund financial statements for...
State whether the following statements are true or false statement T/F 1. Fund financial statements for governmental funds are prepared using the modified accrual basis of accounting and a current financial resources measurement focus. 2. Governments don’t operate in a competitive marketplace, face no threat of liquidation, and do not have equity owners 3. Fund balance arises from the citizens’ “right to know.” It imposes a duty on public officials to be accountable to citizens for raising public monies and...
Which of the following statements are true? There may be more than one true statement. A....
Which of the following statements are true? There may be more than one true statement. A. Any linear combination of vectors can always be written in the form Ax for a suitable matrix A and vector x. B. Every matrix equation Ax=b corresponds to a vector equation with the same solution set. C. If the echelon form of the augmented matrix [A | b][A | b] has a leading entry in every row, then the equation Ax=b is inconsistent. D....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT