Question

a.) All else equal, as yields go down, bond duration goes _________ (up/down). This means that the bond price becomes ________ (more/less) sensitive to changes in interest rates as yields are lower, all else equal.

b.) All else equal, as coupon rates go down, bond duration goes ________ (up/down). This means that the bond price becomes ________ (more/less) sensitive to changes in interest rates as coupon rates are lower, all else equal.

c,) All else equal, as time to maturity goes down, bond duration goes ________ (up/down). This means that the bond price becomes ________ (more/less) sensitive to changes in interest rates as coupon rates are lower, all else equal.

Answer #1

a.) All else equal, as yields go down, bond duration goes
**up.** This means that the bond price becomes
**more** sensitive to changes in interest rates as
yields are lower, all else equal.

b.) All else equal, as coupon rates go down, bond duration goes
**up**. This means that the bond price becomes
**more** sensitive to changes in interest rates as
coupon rates are lower, all else equal.

c,) All else equal, as time to maturity goes down, bond duration
goes **down**. This means that the bond price becomes
**less** sensitive to changes in interest rates as
coupon rates are lower, all else equal.

Bond Duration is directly proportional to time to maturity and inversely proportional to bond yield and coupon rate.

Fill in the Blanks
a.) All else equal, as yields go down, bond duration goes
_________ (up/down). This means that the bond price becomes
________ (more/less) sensitive to changes in interest rates as
yields are lower, all else equal.
b.) All else equal, as coupon rates go down, bond duration goes
________ (up/down). This means that the bond price becomes ________
(more/less) sensitive to changes in interest rates as coupon rates
are lower, all else equal.
c,) All else equal,...

Assuming all else stays equal, when interest rates rise
Select one:
a. bond prices go up.
b. bond prices go down.
c. bond prices may go up or down, depending on whether it is a
premium bond or a discount bond.
d. bond prices may go up or down, depending on the time to
maturity of the bonds.

The actual relationship between bond prices and yields is _____;
if the yield declines by 1%, the bond price will increase by _____
it will fall if the yield increases by 1%.
A. convex; more than
B. convex; less than
C. linear; by the same amount
D. concave; less than
E. concave; more than
Which of the following is correct about duration?
A. Higher coupon rates mean higher duration.
B. Duration is equal to maturity for zero-coupon bonds.
C. Longer...

If assets are unchanged and revenues go up, all else
equal.
ROA will not be affected
ROA will go down
ROA will go up
We don’t have enough information to determine the outcome
48. If
assets increase and costs increase (all else equal).
ROA will not be affected
ROA will go down
ROA will go up
We don’t have enough information to determine the outcome
If assets go down and revenues go up, all else
equal.
ROA will not be...

Duration times the reinvestment rate will give the approximate
change in bond price for a 1% change in interest rates.
A. True
B. False
It is possible that a bond with a shorter maturity than another
bond may actually have a longer duration and be more sensitive to
interest rate changes.
A. True
B. False
One of the benefits of zero-coupon bonds is that they lock in a
compound rate of return (or reinvestment rate) for the life of the...

a) First, consider a 10 year bond with a coupon rate of 7% and
annual coupon payments. Draw a graph showing the relationship
between the price and the interest on this bond. The price should
be on the y- axis and the interest rate on the x-axis. To compute
the various prices, consider interest rates between 2% and 12% (use
0.5% increments). So your x-axis should go from 2%, then 2.5% ...
until 11.5% and then 12%.
Is the relationship...

Consider the following bonds:
Coupon Rate
Maturity
Bond
(annual payments)
(years)
A
0%
15
B
0%
10
C
4%
15
D
8%
10
a.
What is the percentage change in the price of each bond if its
yields to maturity falls from 6% to 5%?
Par value
Yield to maturity
Price at
Percentage
Bond
Coupon Rate
Maturity
Price
5.00%
Change
A
B
C
D
b.
Which of the bonds A–D are most sensitive to a 1% drop in interest
rates...

Assume a discount bond has a few years until maturity and a
positive yield. All else constant, the bond's yield to maturity is
A. directly related to the time to maturity. B. equal to the coupon
rate. C. inversely related to the bond's market price. D. unrelated
to the time to maturity. E. less than its coupon rate.

Which of the following will happen when the yield on a bond goes
up, assuming nothing else changes?
a. The coupon payments will increase
b. The coupon payments will decrease
c. The face value of the bond will increase
d. The bond price will decrease

What is the approximate percent change in value
of your portfolio if all (annual) interest rates go down by two
percentage points?
What is the approximate change in dollar value
of your portfolio if all (annual) interest rates go down by two
percentage points? Your portfolio consists of one of each bond
Bond A: Coupon rate = 10%, Maturity = 2, Price = 109.40,
Duration = 1.82, Convexity = 4.34
Bond B: Coupon rate = 5%, Maturity = 5, Price...

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