Question

Bond ladders have higher weights for those bonds with longer terms to maturity. A. True B....

Bond ladders have higher weights for those bonds with longer terms to maturity.
  • A. True
  • B. False

Bonds A and B have the same time to maturity and the same coupon rate. Bond A’s yield to maturity is 6% and Bond B’s yield to maturity is 8%. This means Bond B will have the longer duration.
  • A. True
  • B. False
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Homework Answers

Answer #1

1. Given statement is FALSE because Bond ladder is focused atapportionment of the bond portfolio into smaller maturity bonds because that will help to to secure the portfolio holder with credit risk and reinvestment risk and help in achieving the same rate of return.

So it is not about having higher weight for those bonds with longer time frame.

Given statement is FALSE.

2. Given statement is FALSE because duration is inversely related to yield to maturity and when the duration of the bonds will be lower, it will mean that the yield to maturity of the bonds will be higher.

In this scenario, Bond A having 6% of yield to maturity and it is smaller than Bond B so bond A will be having a longer duration.

Given statement is FALSE.

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