If an investor desires a bond with a lower duration, holding other factors constant a. Should...
If an investor desires a bond with a lower duration, holding other factors constant a. Should he choose a HIGHER or LOWER coupon? b. Should he choose a SHORTER or LONGER maturity? c. Should he choose a HIGHER or LOWER yield to maturity?
Homework Answers
a Higher coupon...Higher the coupon, lower is the time weighted cash flow average lower is the duration
b Shorter maturity , shorter the maturity lower is the duration because principal payment is earlier
c Higher YTM as duration is inversely related to YTM
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If an investor desires a bond with a lower duration, holding
other factors constant a. Should...
please explain the ans clearly, thanks (a) Are the following statements true or false? Briefly explain...
please explain the ans clearly, thanks
(a) Are the following statements true or false? Briefly explain your answer. i) “The duration of a zero-coupon bond equals its time to maturity.” ii) Holding maturity constant, a bond's duration is lower when the coupon rate is higher.” iii) “Holding other factors constant, the duration of a coupon bond is higher when the bond's yield to maturity is lower.” (12 marks) (b) “It is not possible to forecast stock returns in an efficient...
Question 1 (16 marks) (a) Are the following statements true or false? Briefly explain your answer....
Question 1 (16 marks) (a) Are the following statements true or false? Briefly explain your answer. i) “The duration of a zero-coupon bond equals its time to maturity.” ii) Holding maturity constant, a bond's duration is lower when the coupon rate is higher.” iii) “Holding other factors constant, the duration of a coupon bond is higher when the bond's yield to maturity is lower.” (12 marks) (b) “It is not possible to forecast stock returns in an efficient market.” (4...
1. An investor purchases an annual coupon bond with a 6% coupon rate and exactly 20...
1. An investor purchases an annual coupon bond with a 6% coupon rate and exactly 20 years remaining until maturity at a price equal to par value. The investor’s investment horizon is eight years. The approximate modified duration of the bond is 11.470 years. What is the duration gap at the time of purchase? (Hint: use approximate Macaulay duration to calculate the duration gap) 2. An investor plans to retire in 10 years. As part of the retirement portfolio, the...
Which is true about the "duration" of bonds? A. The longer the term, the shorter the...
Which is true about the "duration" of bonds? A. The longer the term, the shorter the duration. B. The lower the yield, the shorter the duration. C. For zero-coupon bonds, the term is the duration. D. Duration is related to yield (or internal rate of return) of a bond. Regarding bonds in the secondary market... A. their prices are unrelated to the prevailing interest rate environment. B. prices of bonds with more time to maturity are less sensitive to the...
"If the investment horizon is equal to the Macaulay duration of the bond, the investor is...
"If the investment horizon is equal to the Macaulay duration of the bond, the investor is hedged against interest rate risk". However, the above statement is only true if interest rates only change before fist coupon payment is received. Using the following bond to show that if interest rate increases 2% between first and second coupon payment dates, the investor is not hedged against interest rate risk even if his duration gap is zero.: A four-year 33.7% annual coupon paying...
"Holding other factors constant, a lower dividend payout ratio raises the growth rate. But the higher...
"Holding other factors constant, a lower dividend payout ratio raises the growth rate. But the higher growth rate does not necessarily increase the stock value." True or false? Select one: a. False b. True
Which one is true? a. the higher the coupon payment, the lower the bond’s duration b....
Which one is true? a. the higher the coupon payment, the lower the bond’s duration b. the higher the yield to maturity, the lower the bond’s duration c. duration increases with maturity but at a decreasing rate d. all of the above
15. Which of the following is CORRECT about the arbitrage-free price of a coupon bond? The...
15. Which of the following is CORRECT about the arbitrage-free price of a coupon bond? The sum arbitrage-free price of a coupon bond. The coupon of the present value of all cash flows (discounted at the required yield) is the A. B. C. The the present value of all cash flows (discounted at the spot rate of the bond's final term to maturity) is the arbitrage-free price of a coupon bond. of the present value of all cash flows (discounted...
In the context of common stocks, stocks that trade at lower dividend yields relative to other...
In the context of common stocks, stocks that trade at lower dividend yields relative to other stocks have a __________ Macaulay's duration and tend to have _______ observed betas. A. shorter; higher B. shorter; lower C. longer; lower D. longer; higher
B. shorter Bond (15 points) 14. (3 points) A bond is traded at premium and pays...
B. shorter
Bond (15 points) 14. (3 points) A bond is traded at premium and pays an annual coupon rate of 7%. Which one of the following is true about its yield to maturity (YTM)? a. YTM is higher than 7%. b. YTM is lower than 7%. c. YTM is equal to 7% d Not enough information to determine. 15. (2 points) If you are holding a premium bond, you must expect a each year until maturity. If you are...
please explain the ans clearly, thanks
(a) Are the following statements true or false? Briefly explain your answer. i) “The duration of a zero-coupon bond equals its time to maturity.” ii) Holding maturity constant, a bond's duration is lower when the coupon rate is higher.” iii) “Holding other factors constant, the duration of a coupon bond is higher when the bond's yield to maturity is lower.” (12 marks) (b) “It is not possible to forecast stock returns in an efficient...
Question 1 (16 marks) (a) Are the following statements true or false? Briefly explain your answer. i) “The duration of a zero-coupon bond equals its time to maturity.” ii) Holding maturity constant, a bond's duration is lower when the coupon rate is higher.” iii) “Holding other factors constant, the duration of a coupon bond is higher when the bond's yield to maturity is lower.” (12 marks) (b) “It is not possible to forecast stock returns in an efficient market.” (4...
15. Which of the following is CORRECT about the arbitrage-free price of a coupon bond? The sum arbitrage-free price of a coupon bond. The coupon of the present value of all cash flows (discounted at the required yield) is the A. B. C. The the present value of all cash flows (discounted at the spot rate of the bond's final term to maturity) is the arbitrage-free price of a coupon bond. of the present value of all cash flows (discounted...
B. shorter
Bond (15 points) 14. (3 points) A bond is traded at premium and pays an annual coupon rate of 7%. Which one of the following is true about its yield to maturity (YTM)? a. YTM is higher than 7%. b. YTM is lower than 7%. c. YTM is equal to 7% d Not enough information to determine. 15. (2 points) If you are holding a premium bond, you must expect a each year until maturity. If you are...
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