D Question 3Which of the following statements is CORRECT?O If a bond's yield to maturity exceeds its coupon rate, the bond will sell at a premium over par.O All else equal, if a bond's yield to maturity increases, its current yicld will fl.O Ifa bond's yield to maturity exceeds its coupon rate, the bond will sll at par.O All else equal, ifa bond's yield to maturity increases, its price will fll

Bonds means an instrument issued by company acknowledging the debt due from company to bond holder.…

Answered: Question 3 Which of the following…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question 3. A fixed rate bond with notional 1 pays annual coupons of c at times T1, T2, . . . , Tn where Ti+1 = Ti + 1 and notional 1 at time Tn. a) Write down the bond price BFXD c (t) at time t ≤ T0 in terms of ZCBs. b) Suppose t = T0 = 0. The yield of the bond is defined as the value Y such that B FXD c (0) = Xn i=1 c (1 + Y ) i + 1 (1 + Y ) n , that is, the rate at which IRR discounting gives the bond price. By summing a geometric series, show that BFXD c (0) = 1 if and only if Y = c. c) By writing a swap as the difference between a fixed rate bond and a floating rate bond, show that BFXD c (0) = 1 if and only if c = y0[0, Tn]. Remark 1. This exercise shows that the T-year spot swap rate is the bond coupon such that a T-maturity bond has price par, that is 100% of notional.
QUESTION 2 Which of the following statements about bond is incorrect? A. • The longer the maturity, the more sensitive the bond's price to changes in yield to maturity. B. Yield to maturity assumes that all bond coupons can be reinvested at the same level of yield to maturity. The relationship between bond prices and yields to maturity is convex. D. The relationship between bond prices and yields to maturity is inverse. E. For a premium bond, the coupon rate is smaller than current yield.
Which of the following statements are most likely to be true? 1. The only factor that has an impact on a bond's price is its yield to maturity. II. Bond prices and market interest rates move in the opposite direction. III. As time passes and a bond approaches its maturity date, its (ex-coupon) price will converge to its face value. Group of answer choices I and Il only. I and III only. Il and III only. I, Il and II. 3) A company has a bank loan outstanding that requires it to make annual payments of $1,000,000 at the end of each of the next three years. The bank has offered to the company to skip the next two payments and instead make a single payment at the end of the loan's term in three years' time. If the interest rate on the loan is 6% p.a., compounded quarterly, the final payment that will make the company indifferent between the two payment options is closest to: Group of answer choices $2,666,283. $2,673,012. $3,183,600. $3,187,856. 2)
the par value. When the is higher than the coupon rate, the bond sells at a O a. time to maturity; premium over O b. time to maturity; discount to Oc yield to maturity; premium over O d. yield to maturity; discount to CONTACT US 2 Type here to search W
a) All things being equal If a bond's coupon rate is higher than its yieldto maturity (YTM), is the bond selling at a discount, premium or par?b) All things being equal If a bond's coupon rate is lower than its yield tomaturity (YTM), is the bond selling at a discount, premium or par?c) All things being equal If a bond's coupon rate is equal to its yield tomaturity (YTM), then is the bond selling at a discount, premium or par?d) All else being equal, the longer the term to maturity, the greater orthe lower the duration?f) All else being equal, the higher the coupon rate on the bond, theshorter or the longer the duration of the bond?
If the yield of maturity of the bond is equal the coupon rate, the price of this bond will be? a. Lower than the par value. b. Equal the par value. c. Higher than the par value.
2. Bond prices and yields (S3.1) The following statements are true. Explain why. a. If a bond's coupon rate is higher than its yield to maturity, then the bond will sell for more than face value. b. If a bond's coupon rate is lower than its yield to maturity, then the bond's price will increase over its remaining maturity.
5 Which of the following describes yield to maturity? Select one alternative O A single discount rate that gives the value of a bond equal to its market price when applied to all cash flows. O The coupon rate that causes a bond price to equal its par (or principal) value. O Interest rate earned on an investment that starts today and last for n-years in the future without coupons. O Interest rates implied by current zero rates for future periods of time.
2. For cach of the following situation, identify whether a bond would be considered a premium bond, a discounted bond, or a par bond. a. A bond's current market price is greater than its face value. b. A bond's coupon rate is equal to its yield to maturity. c. A bond's coupon rate is less than its required rate of return. d. A bond's coupon rate is less than its yield to maturity. e. A bond's coupon rate is greater than its yield to maturity. f. A bond's fair present value is less than its face value. Answer: a. ..... b. с. d. e. f.
1. Which of the following is correct? Group of answer choices 1. The lower the price you pay for a bond, the greater is your return. 2. A bond is overpriced when its value is greater than its price. 3. A fairly priced bond has a price equal to its face. 4. The value of a bond can be determined by the present value of all coupon payments and the present value of principal payment at maturity date.
3. Bond prices and yields (S3.1) Construct some simple examples to illustrate your answers to the following: a. If interest rates rise, do bond prices rise or fall? b. If the bond yield to maturity is greater than the coupon, is the price of the bond greater or less than 100? c. If the price of a bond exceeds 100, is the yield to maturity greater or less than the coupon?
All else equal, a bond would be sold at __________ if its coupon rate is _________ its yield to maturity. a. premium, lower than b. par, equal to c. discount, greater than d. discount, equal to

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