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- a. Explain the difference between a bond’s coupon,and itsyield to maturity.b. Describe a zero-couponbondCan the price of bond B be determined using the PV function or any other function in excel? What is the EAR (effective annual rate) of these two bonds?Which of the following measures the interest rate risk of a bond in dollars and cents? O Price Value of a Basis Point O Convexity O Modified Duration Duration.
- how will the modified duretion of a floating coupon bond be compared to the modified duration of a fixed rate coupon bond? (same, higher or lower?) (floating coupon adjust coupon accotding to interest rate level, ie higher interest rate results in higher coupon payment)The yield to maturity on a bond a is fixed in the indenture. b is lower for higher-risk bonds. c is the required return on the bond. d is generally equal to the coupon interest rate.Interest Rate risk depends upon how sensitive the bond price is to interest rate changes (i.e., maturity and coupon rate). T/F
- Which of the following statements is false? A. Other things being equal, an increase in a bond’s maturity will increase its interest rate risk. B. Other things being equal, an increase in the coupon rate of a bond will decrease its interest rate risk. C. Other things being equal, an increase in a bond’s YTM will decrease its interest rate risk. D. Effective duration is calculated as Macaulay duration divided by one plus the bond’s yield to maturity.D3) Show that a variable rate bond is priced at par if the coupons are paid with reference to the rate curve with which the flows are discounted.Which of the following bonds has the least reinvestment risk?A. A bond that has a higher coupon rate than the yield-to-maturityB. A bond that has a lower coupon rate than the yield-to-maturityC. A zero-coupon bond
- Which of the following statements is/are most CORRECT? O 11 A yield curve depicts the relationship between bond's 'time to maturity and its yield to maturity. 2) A premium bond's price will decline over time if the required return remains unchanged. 3) A discount bond's price will decline over time if the required return remains unchanged. 4) Both a and b are correct.Which type of bonds offer a higher yield? Callable bonds Noncallable bonds Answer the following question based on your understanding of interest rate risk and reinvestment risk. True or False: Assuming all else is equal, the shorter a bond's maturity, the more its price will change in response to a given change in interest rates. False TrueThe coupon interest rate: O Is larger than the stated interest rate O Is the same as the market interest rate O Is the same as the stated interest rate O Is the same as the effective interest rate