Question

The strategy of riding upward sloping yield curve involves buying a bond with maturity lower than...

  1. The strategy of riding upward sloping yield curve

    involves buying a bond with maturity lower than the investment horizon

    involves buying a bond with maturity more distant than the investment horizon

    involves buying a bond with maturity that is the same for the investment horizon

    none of the answers are correct

Homework Answers

Answer #1

The strategy of riding upward sloping yield curve involves one in which a bond trader attempts to generate a total return by buying bonds of maturity longer than his investment horizon .

so option (A) involves buying a bond with maturity lower than the investment horizon is wrong as it is dealt with riding a declining yield curve.

Option (B) is correct as it can be related with riding a yield curve though it is not specific with riding an upward sloping yield curve.It can be assumed to be more distant on the upside so though it is not specific about the direction in which it is distant , I assume that the more distant specifies for longer maturity of bonds than investment horizon so Statement (B) IS TRUE.

Option (C) is also not correct as it advoctes buying a bond with maturity that is the same for the investment horizon.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
If the yield curve is upward sloping, which of the following statements is correct? Select one:...
If the yield curve is upward sloping, which of the following statements is correct? Select one: a. The default risk premium on T-bonds decreases as years to maturity (T) increases. b. The maturity risk premium on T-bonds decreases as years to maturity (T) increases. c. The inflation premium on T-bonds has to increase with maturity (T). d. The liquidity risk premium on T-bonds decreases as years to maturity (T) increases. e. The real risk-free rate on T-bonds remains the same...
(1) Please explain what it means to the yield to maturity on a 10-year Treasury bond...
(1) Please explain what it means to the yield to maturity on a 10-year Treasury bond relative to that on a 1-year T-bond, when a yield curve is upward sloping? (2) Could you explain what factors help make the yield curve upward sloping and how?
When the discount rate or yield to maturity is lower than the coupon rate the bond...
When the discount rate or yield to maturity is lower than the coupon rate the bond price is less than its par value. a. True b. False
You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve,...
You can calculate the yield curve, given inflation and maturity-related risks. Looking at the yield curve, you can use the information embedded in it to estimate the market's expectations regarding future inflation, risk, and short-term interest rates. The theory states that the shape of the yield curve depends on investors' expectations about future interest rates. The theory assumes that bond traders establish bond prices and interest rates strictly on the basis of expectations for future interest rates and that they...
Which of the following statements is most correct? Junk bonds typically carry a lower yield to...
Which of the following statements is most correct? Junk bonds typically carry a lower yield to maturity than investment grade bonds. A debenture is a secured bond which is backed by some or all of the firm's fixed assets. All else equal, subordinated bonds typically carry lower yields than mortgage bonds. All else equal, convertible bonds are less valuable than straight bonds None of the above statements is correct.
If an investor pays more for a bond than the bond’s face (maturity) value, the yield...
If an investor pays more for a bond than the bond’s face (maturity) value, the yield that the investor will earn, if they hold that bond until maturity, will be a higher value than the bond’s coupon. a) True b) False * Explain why?
A 10-year bond with a 8% annual coupon has a yield to maturity of 9%. Which...
A 10-year bond with a 8% annual coupon has a yield to maturity of 9%. Which of the following statements is CORRECT? a. The bond’s current yield is greater than 9%. b. If the yield to maturity remains constant, the bond’s price one year from now will be higher than its current price. c. The bond is selling above its par value. d. If the yield to maturity remains constant, the bond’s price one year from now will be lower...
Everything else held constant, the yield-to-maturity (YTM) of a bond __________. will equal the coupon rate...
Everything else held constant, the yield-to-maturity (YTM) of a bond __________. will equal the coupon rate if the bond sells at par value will decrease if the price of the bond increases A and B are both correct will be lower than the coupon rate if the bond sells below par value
Assume that a 8-year, 8% bond is callable after 5 years at 105% of par value...
Assume that a 8-year, 8% bond is callable after 5 years at 105% of par value and the discount rate in today’s market is 5%. Using the price-to-worst method, what is the value of this bond? A) 1,000 B) 1,149 C) 1,170 D) 1,268 E) 1,010 An upward sloping yield curve means that: A) Investors require lower returns for longer maturity Treasuries. B) Investors require higher returns for longer maturity Treasuries. C) Investors require higher returns for shorter maturity Treasuries....
The actual relationship between bond prices and yields is _____; if the yield declines by 1%,...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT