Question

A. A bond was issued three years ago. The coupon rate more closely captures the current risk profile of the bond than does the YTM. True or False

B. When the yield-to-maturity on a bond increases its price decreases. True or False

C. All other factors equal, the longer the maturity on a bond, the more sensitive is its price to changes in the YTM (longer maturity = greater price volatility).

Answer 1

A)

Infact, it is the YTM(Yield to maturity) that captures the current risk profile of the bond and not coupon rate. Coupon rate remains constant through out while the YTM changes with change in underlying bond price.

Answer is False

B)

Price of a bond is the discounted future cash flows for the bond. The future cash flows are discounted at the YTM of the bond. So as YTM increases, the price of the bond decreases as they are inversely proportional

Answer is True

C)

Longet the time to maturity of the bond, larger is the price sensitivity. This is explained by the concept of convexity and duration of the bond. Longer the maturity of the bond, the convexity on the bond will be greater.

Answer is True